Credit Score

Are you curious about how to enhance your credit score? Understanding this financial metric can significantly impact your financial health. Here are some key questions answered:

What is a credit score? A credit score, commonly known as a FICO® score, is an assessment of your creditworthiness. It is a crucial metric for anyone who wants to borrow money, rent an apartment, or even secure a job.

What does a credit score mean, and why does it matter? Your credit score, often measured on a scale from 300 to 850, influences your ability to obtain credit and the terms (interest rates) you will receive. A higher score generally means a lower interest rate, allowing you to save significantly in interest costs tied to mortgages or car loans. As an example: a 6% interest rate on a $500,000 mortgage over 30 years versus a 7% rate of interest on the same amount equates to a difference of $653,712 in interest payments over the life of the loan.  

What is my credit score based on? Credit scores are based on several factors, including your payment history, amount owed, length of credit history, new credit accounts, and types of credit used. Understanding these components helps you manage and improve your score.

Can I improve my credit score? Strategies like paying bills on time, keeping credit card balances low, limiting new credit applications, diversifying credit types, and maintaining a longer credit history can all positively impact your score. Your score is derived from up to 10 years of credit history. As negative credit reporting “expires,” your score should increase. Check your credit regularly to identify errors. Mistakes in reporting can be disputed and removed from your credit history. Lastly, consider asking credit card companies to increase your available credit, or becoming an authorized user to increase your available credit balance.

Action Item: Establish Credit Monitoring and Credit Lock Services 

To safeguard your financial health, consider setting up credit monitoring and credit lock services with one of the three major credit bureaus—Experian, Equifax, or TransUnion. These services provide ongoing monitoring of your credit report for any suspicious activity and allow you to lock your credit file to prevent unauthorized access. Many credit bureaus will allow you to enhance your credit score by demonstrating on-time rent payments and even utility bills.

Monitoring your credit regularly helps you stay informed about changes to your credit profile, while a credit lock adds an extra layer of security against identity theft and fraud.

By taking these proactive steps, you can actively manage and protect your credit information, ensuring your financial well-being in the long term.