Understanding Your Credit Score
Are you credit-score-aware?
Healthy credit is a key component for processes like mortgages, auto loans and qualifying for a new job. Your credit score, also known as a FICO score, measures credit worthiness and while t’s only a small piece of the credit pie, it’s an important one.
According to a survey by OnePoll of 2,000 Americans, one in eight respondents have no clue what their credit score is. Of those who have some familiarity with their score, nearly half (46%) have not checked it in the last two months.
Understanding your credit score will greatly improve the chances for obtaining the highest score possible. According to Value Penguin by Lending Tree, the average credit score in America is 695 which is considered very good. This average is at an all-time high.
Credit score ranges at Skyward are as follows:
- Exceptional: 740+
- Very Good: 680-739
- Good: 640-679
- Fair: 600-639
- Poor : 550 and less
What Impacts a FICO Score?
- Payment history 35% (Late payments lower your score, History of on-time payments raises your score)
- Capacity 30% (Ability to repay a loan and assessing debt-to-income ratio)
- Length of history 15% (Length of time for open revolving accounts)
- New credit 10% (Number of recently opened accounts)
- Mix of credit 10% (Different kinds of credit you have)
Tips to Improve your Credit Score
The importance of good credit should not be overlooked. It is the snapshot of your entire credit history and is the key that unlocks everything from securing a loan to qualifying for a job to buying a home. It takes patience and consistency to build a high credit score, but it’s something everyone can achieve.
There are many ways you can improve your score. Here are a few tips to start with:
- Keep tabs on your credit – You can request a free credit report once a year from each of the three major credit reporting agencies: Experian, TransUnion and Equifax.
- Don’t forget to make regular payments –Paying your bills on time consistently can raise your score in just a few months.
- Don’t close your credit cards – Keep unused credit card accounts open because the age of your history matters for a healthy score. A longer history is always preferable. If you must close credit cards, choose to close newer ones.
- Pay down maxed out credit cards first – If you use multiple credit cards and one (or more) has a balance that is close to or right at the limit, pay it down first to bring down your credit utilization rate, which is the percentage of available credit used during a billing cycle.
- Consider debt consolidation – If you find yourself overwhelmed by credit card debt, consider a debt consolidation plan. Your score might temporarily drop upon signing up, but will quickly improve if you make your payments on time. As a bonus, you are eliminating the debt that got you in trouble in the first place.
Learn more about factors that affect your score
Whether you have a low or high score, learning about the factors that can help or hurt your credit score is an important step in improving it. Watch Skyward’s webinar on Credit Score Enhancement and learn what goes into your score, who uses it, and how you can improve it.