There’s a three-digit number tied to you that has a huge impact on your life: your credit score. When you hear “credit score,” most people are referring to your FICO (Fair Isaac Corporation) score. The three different credit bureaus (Equifax, TransUnion and Experian), all have a FICO score for you, but they may vary slightly. Your FICO credit score will be from 300-850, with 850 being the best score.
Credit scores are based on an algorithm that looks at your payment history, current debts, types of debt, frequency of new applications and length of history on record.
But enough about what it is, what does it mean? And how do you make it better?
Why Your Score is Important
Your credit score determines how much of a risk you are to lenders. When you apply for a loan of any kind, they’re going to look at your score to determine:
- If they can even lend you money
- How much you’ll need to pay in interest (the better your score, the lower your interest)
Cell phone companies and landlords will also be interested in your score before giving you a contract to sign.
But besides impacting your big purchases, your score can infiltrate other areas of your life, too. For example, your insurance rates may be better if you have a good score. And some employers may require to see your score as well.
How To Improve Your Score
It’s important to proactively monitor and improve your score, because it can take a long time to repair any damage.
The best thing you can do is make your payments on time, as that’s the biggest influence of your score. If you have trouble remembering bills, set up auto payments. Aspire has an excellent Bill Pay service that allows you to schedule out all your bills from one place, then either have them paid automatically or manually when you’re ready.
If you have high balances on your credit cards, focus on getting them lower. Pay more than the minimum so you have more revolving credit than debt.
There are also some things you should NOT do to improve your score. Closing an account is a big one. You might think you’re making things easier by erasing temptation, but you’re also erasing credit history. Not worth it.
You should also avoid applying for multiple new accounts at once. That’s a big red flag to your score.
With a budget and debt management strategy, you should be set to build your score. Make it a goal this year!