UFCU SPONSORED CONTENT – Credit is an important tool you can use to manage and improve your financial health. Use it wisely because it has a direct impact on your credit score. We explain why your credit score matters and how you can take control.
So what is a credit score?
Your credit score is a number that tells lenders how likely you are to pay them off. The most common score used by lenders is a FICO® score, which ranges from 300 to 850. The higher your score, the less risky it is to lend you money. Typically, a high score means you will have better loan terms and lower interest rates.
What do the numbers mean?
The range of FICO® scores translates into these values:
- Less than 580 = poor
- 580–669 = Fair
- 670–739 = Good
- 740–799 = Very good
- 800–850 = Exceptional
What goes into a credit score?
The good news is that you are in control of how your credit is rated. Five ingredients make up the score, some counting more than others:
- Payment History, also known as Pay On Time – 35% – This is the most important factor!
- Amounts Due – 30% – This is how much of your available credit is used.
- Length of credit history – 15% – This includes the age of your oldest account and how long you’ve used certain accounts.
- New Credit – 10% – Avoid opening multiple new accounts in a short period of time.
- Loan Breakdown – 10% – It’s good to have a variety of types of debt, like credit cards, mortgages, and installment loans like auto, student, and personal loans.
How do you improve a credit score?
Always pay your bills on time, every time. Every time you miss a payment, even if it’s just a day, your credit score goes down. If you have a hard time with this, try to schedule your payments so that they are automatically deducted from your checking account each month.
The second most important thing you can do to improve your score is to keep your balances low. It is recommended that you pay off your credit card balance in full each month to avoid having to pay interest. If that’s not possible, keep your outstanding balance below 30% of your total limit. For example, a credit card with a limit of $ 5,000 should have less than $ 1,500 to pay. A balance greater than 30% will lower your score.
A good credit score takes time to build and improve, so be patient. Remember, you have the power to control your credit score and ultimately your financial health.
If you’re looking for additional financial tips and tools to better plan, spend, save, and borrow, check out PlanU by the UFCU. You’ll find options ranging from chatting with a financial health expert to creating a personalized resource center to meet your needs.
