Your credit score just might be the most important three-digit number in your life.
This number looks at your financial history to assess how likely you are to pay back creditors, like credit card companies or loans. A good credit score is essential to a bright financial future, like finding better rates for insurance plans or getting approval for a mortgage.
The FICO credit score, which a majority of financial institutions use, looks at the following factors to build your score:
- Your payment history on credit cards and loans
- Credit utilization
- The length of your credit history
- Type of credit used
- Past credit applications
According to FICO, the average credit score in 2020 was 710. This score would fall into the “good credit” category, one below excellent credit, which comprises scores of 720 and up.
Generally, older people have higher credit scores than younger people because they’ve had more time to establish their credit.
But you may find that your credit score, no matter your age, is not where you’d like it to be. Below-average scores can hamper your ability to open new lines of credit or apply for mortgages and car loans.
There are simple steps you can take to start boosting your credit score today.
1. Check YOUR Credit Report
Your credit report, which is a detailed history of your credit use, is used to calculate your three-digit credit score. However, there may be errors under your name, such as incorrect information stating you missed payments, and it’s important to correct those mistakes.
Accessing your report typically costs a small fee, but there is a way to get this information for free.
There are currently three major credit report providers: TransUnion, Experian, and Equifax. Under the Fair Credit Reporting Act, these agencies are required to give you a free report every year. Take full advantage of this to spot any errors and correct them.
To Order Your FREE Annual Credit Report
Call 877.322.8228 or order online.
2. Watch Credit Utilization
Your credit score also takes into account how much credit you’re using.
For example, credit cards have a specific limit you cannot pass. Hitting that limit or close to it, or “maxing out”, should be avoided. While having a large amount of credit can be useful, you don’t necessarily want to use it all.
Ideally, you want to utilize 30 percent or less of your credit. The best strategy to lower your utilization ratio is to pay off your balance and hide the card to avoid using it. Pay down the credit balance fast, and your credit score will be in better shape. You should also weigh the pros and cons of the types of credit cards you use, like store credit cards.
Your credit score will not improve if you’re frequently using your cards. You have to commit to using less credit, or none at all while you make payments.
You can also lower your credit utilization by requesting a credit increase, but this should not be your first course of action. You still have to remain disciplined about your credit use. Increasing your credit only to go on a shopping spree will not help you raise your credit score.
You have bills you need to pay every month, and paying them off on time is essential to an excellent credit score. Even missing one payment can damage your score.
Consider setting up automatic bill payments for a specific date every month. This way, you aren’t scrambling to make payments minutes before they’re due.
You should also try to pay more than the minimum balance. Interest on your balance will compound over time, which means you will end up paying more over many years. You can find your minimum payments and interest rates on your monthly bills.
Calculate how much you’re able to afford in monthly payments. By paying off more than the minimum, you’ll lower the amount you owe faster.
These steps can help you increase your credit score in just a few months. And with every increase, you are helping yourself build a brighter financial future.
Whether you want to pay down balances faster, maximize cash back, earn rewards or begin building your credit history, Bank Midwest can help you find the best card for you.