What’s a credit score and why is it so important?
A credit score, also known as a FICO Score, is a calculation based on your activity in a few categories that assess the likelihood that you will repay any debt you owe. The higher the score, the more likely it is that you can handle your debt.
This is important when you need to take out a loan to buy a new car, get a mortgage, or open a credit card. People with high credit scores can get lower rates on their loans compared to people with low scores, which means they will pay less money in interest.
It’s also important to understand that there isn’t just one score — there are three major credit-reporting bureaus: Experian TransUnion, and Equifax.
Your score will vary depending on which agency you’re looking at because there are slight differences in their calculations.
However, the factors that impact your score are the same, and understanding them is the first step to building great credit.
Four Strategies for Boosting Your Credit Score
If you’re just starting out, or trying to repair your credit, consider these tips:
- Set up automatic payments. Payment history has the biggest impact on your credit score, so automatic payments just make sense. SESLOC offers free Bill Pay so you can ensure bills are paid on time and that you never miss a payment.
- Correct errors on your credit report. Statistics show that 70% of all credit reports contain at least one error, whether it’s due to identity theft or a simple clerical error. Review your free annual credit report for accuracy, and report any errors in writing to the credit bureau (Experian, Equifax, and/or TransUnion). Learn how.
- Get free financial coaching. SESLOC Money Coaches can help you make plans to improve your credit score or reduce debt with personally tailored guidance.
- Maintain your credit utilization. You might be considering closing your credit cards after you pay them off, but keep in mind that your credit utilization and length of credit history plays a part in your score. Keep your card with the longest history, and aim to use no more than 30% of your credit limit.