Think of your credit score like a report card you used to get while you were in school. Your report card measured your progress during the school year, and your credit activity puts you into a scoring range. But, unlike grades, credit scores aren’t stored as part of your credit history. Instead, your score is generated each time you apply for credit. Fun fact: it actually negatively impacts your credit score if you have multiple inquiries in a short period of time.
What are your major financial goals? Buying a home? Buying a car? Chances are, your credit is likely going to be a factor in framing that financing picture. Your score will actually tell a lender whether or not you qualify for a loan and how good the terms of the loan will be. For instance, the lower your credit score is, the higher your interest rate on a car loan will be.
If you’ve looked at your credit report, and you’re surprised to see it’s lower than you thought, don’t worry.
There are simple ways to fix that.
- Pay your bills on time. That goes for ALL your bills – not just credit cards and loans. Fun fact: payment history is the most heavily weighted factor of your credit score. It makes up 35% of your credit score.
- Keep your credit card balances low. Credit history accounts for 15% of your credit score so keep those old accounts open even if you don’t use them.
- Space out your credit applications. Each time you apply for a line of credit, the inquiry is noted on your credit report. One or two inquiries aren’t a huge deal, but when you have a bunch within a two-year period, it can cause your score to fall.
- Mix up your credit. Your credit mix, or the types of credit accounts you have, accounts for 10% of your credit score. Basically, lenders want to see that you can use different types of credit responsibly.
Credit doesn’t have to be scary or overwhelming. There are many responsible ways to start out slowly and build worthwhile credit for the future. Park City Federal Credit Union can help. Are you looking for help building or establishing credit? We have a number of ways to start you on the right path. Let us help you! Stop by one of our branches today or give us a call to see what options we have.