If you've ever applied for a loan before, you know credit is everything. Your credit score can affect everything from getting a loan to renting an apartment or even landing a job.
In this article, we'll discuss what a credit score is, why it's important and how you can improve it for a bright financial future.
What is a credit score?
A credit score is a number that ranges from 300 to 850 and is calculated by the three major credit bureaus (Equifax, Experian, and TransUnion) based on the information in your credit report.
It is used to predict the likelihood of your repaying a loan on time. A higher credit score indicates that you are more likely to pay back a loan, and a lower score signals that you are a higher risk to someone who might offer you a loan, hire you or rent you an apartment.
Why is a credit score important?
Your credit score is important because it reflects your creditworthiness. Lenders use your credit score to determine the interest rates they will offer you. Having a higher credit score can potentially save you thousands over the life of a loan.
Credit scores are not just important for borrowing money. They can also impact other areas of your life, such as getting a job or renting an apartment. Many employers and landlords run credit checks as part of their screening process to assess your level of financial responsibility.
How is a credit score calculated?
No one knows the exact formula that credit bureaus use to calculate scores. But we do know that the following factors play an important role:
Payment History
This is the most important factor in determining your credit score. Overdue payments, collections and bankruptcy can have a negative impact on your score.
Credit Utilization
This refers to the amount of credit you are using compared to your total credit limit. If you have high credit utilization, this suggests that you don't know how to use credit responsibly.
For example, if you have a credit card limit of $5,000 and have a balance of $500, this represents a 10% credit utilization ratio.
Length of Credit History
The longer your credit history, the better your credit score. A long credit history shows that you have a long track record of responsibly managing credit.
Types of Credit
Having a mix of credit types (such as a credit card, car loan and mortgage) can help improve your score.
New Credit
Opening several new credit accounts at once can negatively impact your credit score.
How can you improve your credit score?
Improving your credit score takes time and effort, but there are several things you can do to improve your creditworthiness. Here are a few tips:
Pay your bills on time
Payment history is the most important factor in calculating your credit score, so it's crucial to make all your payments on time.
Keep your credit utilization low
It is generally advised to keep your credit utilization under 30%.
Don't close old credit accounts
The length of your credit history is important, so avoid closing old credit accounts, even if you're not using them.
Monitor your credit report
Check your credit report regularly to make sure there are no errors or fraudulent activity that could negatively impact your credit score.
Ready to improve your credit score? Apple can help.
Understanding what a credit score is can help you make informed decisions and achieve your financial goals.
While improving your credit score takes time and effort, our Apple FCU credit experts can provide actionable advice to help you boost your score and improve your financial future.
Ready to boost your credit score? You can schedule a FREE credit review* at a branch or by video appointment.
*Will appear as a soft hit credit inquiry on your credit report. Government-issued photo identification may be required.
