Your credit score is more than just a number; it’s a vital tool in your financial journey. It can impact your ability to secure loans, rent an apartment, or even get a job. Whether you’re just getting started building your credit or looking to improve your score, Rollstone Bank & Trust is here to help you achieve your financial goals.
What Is a Credit Score?
A credit score is a numerical representation of your creditworthiness, ranging from 300 to 850. This number is calculated using the data on your credit report, which includes your borrowing and repayment history.
Higher scores of 700 or better are considered “good,” as they suggest a lower risk to lenders, often resulting in preferred loan terms and lower interest rates. Lenders almost always check your score when you apply for credit cards, car loans, mortgages, and other loan products, making it a crucial part of your financial planning.
5 Factors That Influence Your Credit Score
Your credit score is determined by five key factors, and understanding them can help you make better financial decisions.
1. Payment history
Payment history is the most important factor, making up 35% of your total score. On-time payments signal to lenders that you’re reliable, while missed or late payments can significantly harm your score.
2. Credit utilization ratio
This measures the percentage of your available credit that is used. A lower ratio, preferably under 30%, is ideal, as it shows that you aren’t overly reliant on credit.
3. Length of credit history
The longer you’ve had credit accounts, the better it is for your score. This factor considers the age of your oldest and newest accounts and the average age across all your accounts.
4. Credit mix
Having a variety of credit types, including credit cards, auto loans, and mortgages, can positively impact your score. It proves to lenders that you can manage various types of debt responsibly.
5. New credit inquiries
When you apply for credit, a hard inquiry will be added to your credit report. While one or two inquiries will not significantly impact your score, multiple inquiries in a short time can lower your score as it may signal financial instability.
How to Increase Your Credit Score
Improving your credit score is not an overnight process, but you can see significant results over time with consistent effort.
Pay bills on time
Since payment history carries the most significance with your credit score, paying all your bills on or before their due dates is crucial. With Rollstone Bank & Trust’s bill pay, available for free through our online and mobile banking, you can set up automatic payments and reminders to ensure you never miss a deadline.
Reduce your credit utilization
Lowering the amount of credit you use is another way to boost your score. For example, if your total available credit is $10,000, your goal should be to keep your total loan balances below $3,000 so that your ratio of credit used is 30% or less.
Paying off debt can improve your credit score, and consolidating your debt with a low-interest secured personal loan can help you pay off your balances faster (and for less).
Avoid opening too many accounts
Every new credit application generates a hard inquiry, which can lower your score. Additionally, opening too many accounts in a short time can make you appear risky to lenders. Focus on maintaining your existing accounts and only apply for new credit when necessary.
Understanding how credit scores work and taking proactive steps to manage yours will help set you up for a successful financial future. For over 175 years, Rollstone Bank & Trust has been a trusted financial partner, helping our neighbors achieve their goals through personalized guidance and tailored financial solutions.
Ready to take control of your financial future? Contact us today to learn how we can help!