How to Build and Improve Your Credit Score
How to Build and Improve Your Credit Score
A good credit score can play a huge role in your financial success and financial wellness. TopLine and LSS Financial Counseling are here to give you some tips to help you establish and build your credit score.
A good credit score can help you lots of ways:
- Get approved for credit cards
- Establish cell phone service
- Rent an apartment
- Obtain lower rates on car insurance premiums
- Get a certain type of job
- Secure a loan to buy a house, car, or other major purchase
- Qualify for the best interest rates and terms on credit cards and loans
These benefits decrease if your credit score is low, you have negative information on your credit report or you have little to no credit history – this is known as a “thin credit file.” Generally those affected by a thin credit file are:
1. People who are new to the lending industry
- Typically those in their late teens or early twenties
2. Individuals who have used cash most of their lives
3. People who are new to the country
There are a number of ways to build your credit.
- Co-signed accounts for credit cards or loans
- Credit builder loans
- Secured credit cards
- Authorized user
- On-time rental payments
How to Build Your Current Credit Score
- Pay at least the minimum amount due by the due date each month. Late payments account for 35% of your credit score, and one delinquent payment can substantially lower your score.
- Your “utilization rate”, or your balances in relation to your credit limit, accounts for 30% of your credit score. Therefore, it’s smart to keep your balances low or less than 30% of your credit limit, helping you maintain a good credit score.
- Avoid applying for multiple accounts in a short period of time. Each time you apply for credit, a creditor will pull your credit report to see how much risk you pose as a borrower. Each look is called a “hard inquiry.” Too many hard inquiries can negatively impact your credit score, though this impact will fade over time. Hard inquiries remain on your credit report for two years.
- Maintain a positive credit history over long periods of time.
- Dispute any inaccurate information.
The FICO score is the most commonly used credit score by lenders when issuing loans and determining interest rates. Most scores range from 300-850. A score above 800 is exceptional; 740-799 is very good. And scores between 670-739 are considered good.
How are Credit Scores Determined?
- 35% — Payment history
- 30% — Credit usage
- 15% — Length of credit
- 10% — Recent activity
- 10% — Types of accounts
How Often Do Credit Scores Change?
Lenders typically report both positive and negative information to the credit bureaus once per month. As a result, your credit score can change a bit each month, depending on what is reported. Late payments or an increase in credit utilization might create a drastic drop in your credit score.
Being a TopLine member gives you and your family access to up to six (6) free private and confidential financial education counseling sessions annually with a certified consumer credit counselor from LSS Financial Counseling. Sessions are available by phone, in-person or online. Contact LSS today for your free financial education session at 1-800-528-2926 or visit LSS online and mention you are a TopLine member.