Your credit score is a number, usually between 300-850, that lenders use to determine how likely you are to repay a loan.
It’s a crucially important component of your financial health because your credit score will impact your ability to get financing for anything from a car to a mortgage.
Landlords might even check your credit on a housing application to see how likely you are to pay rent on time.
Lenders check your credit score, which is just one of the reasons why it’s important that you know what’s on your credit report. Here, we explore how you can check your credit score and improve your financial health.
How Do Credit Scores Work?
Your credit score is based on data reported to the major credit bureaus about your history managing debt accounts, like loans and credit cards. One of the most common models, the FICO® Score, use the following criteria to calculate your credit score:
Payment history (35%)
Your record of making payments on time and avoiding late or delinquent payments.
Accounts owed (30%)
Also known as credit utilization, this is an indicator of how much of your available credit you’re using. If you owe more than 50% of your available credit on a credit card, for instance, lenders may be unwilling to extend you additional credit.
Length of credit history (15%)
The longer you’ve been using credit and paying it back responsibly, the better you will score.
Credit mix (10%)
Demonstrating an ability to balance credit cards, installment loans, mortgages and other types of credit can help your score.
New credit (10%)
Opening several types of credit accounts in a short amount of time often indicates greater risk to lenders.
It’s important to know how credit scores work so that you can better understand your credit report and why your score is what it is. Moreover, knowing the calculations can help you take steps to improve your credit.
How to Check Your Credit Score
Checking your credit report is quite simple. Many financial institutions and credit card issuers offer free credit reports as a perk to clients, although it’s uncommon that they offer both FICO® and Vantage Scores from all three bureaus.
You can contact your bank, credit card company or even an active lender and they will typically provide your credit score, if not your full credit report.
Alternatively, you can visit AnnualCreditReport.com to get your credit report from all three credit bureaus. Equifax, Experian, and TransUnion also now allow you to check your credit report at each of the agencies once a week for free.
There is some variability in how credit scores are calculated and the models that different lenders and credit bureaus use. As such, you might see some inconsistencies across reports from different providers, but they shouldn’t be dramatic.
By checking your credit report frequently, you can ensure your credit score is moving in the right direction and catch any inaccuracies or fraud early.
How to Improve Your Credit Score
A poor credit score can impact how much you can borrow, your interest rates or even make you ineligible for certain types of financing. As such, it’s important to take steps to repair your credit if it’s in bad shape.
Some ways to do that include:
Make payments on time
Just one 30-day late payment can have a major impact on your credit score. The easiest way to build your credit is by making loan payments on time and paying off your credit card statement balance in full each month.
Don’t overuse your credit card
Using your credit card for everything could run your credit utilization too high. Always try to keep your balances under 30% of your limit.
Avoid opening too many new accounts
Frequent credit applications in a short amount of time can have an impact on your credit score, which in turn affects your overall financial health.
That said, if you’re looking for home, auto, and student loans around the same time, do it within a couple of weeks and just one inquiry should appear in your report.
Mix your credit
Successfully managing a mix of credit accounts, like a credit card, a car loan, and student loans can help your credit score.
Report payments yourself
Rent payments, utility payments and even subscription payments for streaming services could help your credit. Ask your landlord if they can report your rent payments or take matters into your own hands and report your payments to credit bureaus yourself.
Check your reports frequently
Finally, it’s not uncommon for there to be inaccuracies in your credit report. By checking frequently, you can correct mistakes and alert agencies to fraud on your account.
Through regular credit score checks and responsible credit management, you can keep your score in good shape and stay on track to meet major financial milestones like buying a car, going to college, or buying a home.
Take Control of Your Financial Health by Tracking Your Credit Score
Understanding and actively managing your credit score is essential for maintaining financial stability and achieving long-term goals.
By checking your credit report regularly, making timely payments, and keeping your credit usage low, you can steadily improve your credit health. Small, consistent actions today can open the door to better financial opportunities tomorrow.
