Credit Scores Decoded

Your credit score is an important part of your financial picture. Lenders use credit scores to determine the rate term and amount that you can borrow for car loans, credit cards and home loans. Knowing the factors that impact your score can help you understand your credit report, pinpoint areas that need improvement, and get you approved at the lowest rate when you need to borrow.

What is a credit score?

Your credit score, usually between 300 and 850, is a prediction of your creditworthiness – indicating how likely you are to repay a loan on time. A credit score gives lenders a brief overview of your repayment history and ability to repay loans.

What affects my credit score?

There are five key factors that play a role in determining your score, representing different facets of your financial habits and accountability. Understanding how these factors affect your credit score is essential for effectively managing and improving it in the long run.

• Payment history: This reflects the history of your payments, whether you've consistently paid bills and other obligations on time. In general, on-time payments will improve your credit score.
• Credit utilization: The amount of credit you’re using compared to your limits. For example, if you have a $6,500 balance on a credit card that has a $10,000 credit limit, your credit utilization ratio is 65%. In general, the utilization ratio should be between 10%-30% on all your credit cards. If you get to 50%, request a credit limit increase.  
• Length of credit history: The longer the history of responsible credit usage, the better. It shows a track record of being able to manage credit well.
• Types of credit: Having a variety of credit types, such as installment debt (auto loans and mortgages) and revolving credit (credit cards and home equity lines of credit) can benefit your score.
• New credit inquiries: Whenever you apply for credit, it triggers a "hard" inquiry on your credit. A hard inquiry, occurs when a lender checks your credit report as part of the loan application process. Too many inquiries in a short period of time could temporarily decrease your score.

What is considered a good credit score?

Although ranges vary depending on the credit scoring model, scores between 670-739 is generally considered good. A higher credit score increases the chances of approval from a lender and will also qualify you for more favorable rates and terms. A good score shows that you have a history of responsibly managing your credit and can make them feel more confident in lending you money.

The popular FICO score, used by many lenders, places individuals into five categories:

• 800 and above – Exceptional
• 740-799 - Very Good
• 670-739 – Good
• 580-669 - Fair
• 579 and below - Poor

How can I check my credit score?

Many credit card companies and financial institutions provide credit scores for their customers within their online accounts. In addition, you have the right to request one free copy of your credit report from each of the three major consumer reporting companies (Equifax, Experian, TransUnion) by visiting AnnualCreditReport.com. These platforms offer in-depth insights, including your current score and the factors influencing it as well as tools to improve your credit score.

How can I improve my credit score?

There are several ways to improve your credit score, including:

• Paying bills on time: Establish a consistent payment history by ensuring all bills and debts are paid by the due date.
• Reducing debt levels: Work on lowering your overall debt, especially on credit cards. To maintain a good or excellent credit score, it's best to aim for a credit utilization ratio below 30%.
• Limiting new credit applications: Only apply for new credit when necessary. Each application can result in a hard inquiry which might temporarily lower your score.

Understanding and managing your credit score is important for your financial health. By using new credit wisely and practicing healthy credit habits, you can gradually boost your score. This can lead to better loan terms and interest rates. Begin making small changes today for a more stable financial future.

If you currently have high-rate credit cards or loans, call a member service representative at (888) 858-6878. We will help determine if we can save you money by refinancing high-cost loans.