Why your credit score matters
Your credit score doesn't just determine whether or not you get approved for a loan or credit card – it has far-reaching effects on your life.
If you have bad credit, you know it can feel like a million doors slammed in your face. Plenty of things people take for granted, like getting an apartment or a car or even a job, can suddenly become much more difficult.
In this article, we’re looking at some of the ways your credit score can affect your life and offer a few tips for improving your credit.
What is a credit score?
Your credit score is a three-digit number from 300 to 850 that is built from various aspects of your credit history. Credit scores largely come from two main sources: FICO and VantageScore. There are a number of factors that affect your credit score including:
- Payment history (35% of your score)
- Accounts owed (30% of your score)
- Length of your credit history (15% of your score)
- How frequently you’re opening up new lines of credit (10% of your score)
- What makes up your credit – revolving accounts like credit cards and installment accounts like long term loans (10% of your score)
Steps to improve your credit score
If your credit score is on the lower side, and you’d like to improve it. Here are some tips to get started.
- Get a copy of your credit report. Being informed of your current credit score is the first step in taking control and looking for areas of improvement. You can get a free report from one of the three major credit bureaus: Equifax, Experian or TransUnion. Your bank may offer this service too.
- Prioritize outstanding payments. If you have any late payments, that’s the first thing to focus on. Lenders and insurance agents can see how late a payment was (in 30, 60, or 90+ day installments). The later the payment, the greater the impact on your credit score.
- Pay off revolving credit debt. Starting to chip away at debts will help to raise your credit score. Search for free credit counseling in your area if you need help figuring out which debt should be paid off first.
- Focus on paying bills on time. Missing a payment can lower your credit score in a hurry.
- If you’ve paid off a debt, ask to have it removed from your report. Sometimes even old debts that have been paid will still be affecting your score. You can speak to the original creditor or collections department to see about having those removed.