Whether you know it already or not, you have a credit score. And this number can have a huge impact on which loans and products you are approved for in life, not just with credit unions and banks, but other financial products as well. Knowing how to manage your credit score and how to increase your score, is an important part of navigating your financial success.
What is Credit and Why Do I Need It?
Credit is your financial power when it comes to loans. It helps you get things you may not be able to afford with cash. What kind of things? Auto loans and home mortgages are usually too expensive for most people to afford out of pocket, so financial institutions offer loans to help with these bigger ticket purchases. These loans, as well as the amount you are eligible for, are determined based on your credit score and history.
How is Credit Score Determined?
There are many factors that ultimately make up a credit score. You’ll want to focus on all of these things equally to make sure your report doesn’t take any negative hits.
- Payment History – Making timely payments on your loan has the biggest positive impact to your score.
- Credit Utilization – This is looking at how much you have borrowed. Having very little won’t help increase your score. Having too much can definitely have a negative impact.
- Length of Credit History – It’s important to start establishing some type of credit once you turn 18. Doing so will help you build a credit score.
- New Credit – Opening new credit can have a negative or positive impact depending on how much you have on your credit history already. Opening a lot of new credit at the same time can indicate a sign of financial trouble.
- Credit Mix – Having a wide variety of credit, like multiple credit cards can be a sign of bad spending habits. An auto loan, one or two credit cards, and a mortgage can look good if balanced and your debt-to-income ratio isn’t too high.
Who Reports My Credit Score?
Credit scores are established and reported by three main credit bureaus in the United States. Whenever a lender pulls your report, they will either pull all or from one of the following: Experian, TransUnion or Equifax. Although they use similar factors in determining your report, each one can have some variances in how score is calculated. This can result in having a different FICO score with one, or all of the three credit bureaus.
Check Your Report Quarterly
Although you cannot pull your score for free or without a hard pull on your credit report, you can get a summary of what is on your report at no cost. Visit www.annualcreditreport.com, to pull a summary of your report from each of the three major credit bureaus. From this information you can see exactly what is affecting your account in a positive and negative way. It also helps to make sure everything on your report is legitimate and no fraudulent accounts have been taken out in your name. You can check each report once a year for free, so the best way to take advantage of this is to check one of the three reports every four months. This will keep you up-to-date on what’s happening with your credit.
If you considering getting a mortgage soon, our Mortgage Origination Officer has some helpful tips for you.
A credit report can have a huge impact on your finances; that’s why Astera has certified financial counselors on staff to help you. Contact us today for a financial consultation and we’ll help you set up a game plan to manage or increase your credit score!