Credit scores are an important aspect of financial health. If you plan to take out a mortgage, get a credit card with a higher limit, or even rent an apartment, chances are your credit score will help determine if you are allowed to do so. Your credit score is a rating that helps banks, loan officers, and other organizations make a quick judgment about you. Having a good credit score reflects positively on you and can save you money over the years.
What Is Your Credit Score Used For?
Credit scores are used by a wide range of institutions as a method of measuring how responsible potential customers or borrowers are. Your credit score shows them how likely you are to pay back borrowed money or make payments on time. Loan companies and other lenders are the most likely to refer to your score since it reflects your behavior with companies like them, but plenty of other institutions will use it as well. Insurance companies will often look at your score to get an idea of your level of financial responsibility, which is one of the things that helps them determine what kind of rate to charge you. Landlords might check your score to make sure they can trust you to pay rent in full and on time, along with utility companies. A higher credit score makes you more likely to qualify for a lower interest rate on loans and a higher credit limit with your bank, which can add up to savings on large loans and mortgages.
How Is Your Credit Score Calculated?
Credit scores are created by looking at several aspects of your financial history. Scores range from 300 to 850, and higher scores are more desirable. Your payment history is the most relevant part of your credit score. It tracks whether you pay your bills and how often you manage to pay them on time. The amount of money owed also goes into creating your credit score. It measures how much of your credit limit you use at a given time, and is commonly called utilization ratio. Keeping this low helps your credit score.
Other Factors That Affect Your Credit Score
The length of your credit history also helps establish your credit. A longer history is better for your credit score since it can show if you have consistently responsible payment and spending habits. The number of credit accounts you have is also a determining factor. When you have only a few forms of credit, you might have a lower credit score. Too many credit card accounts can also lower your score. A diverse array of credit from different kinds of loans, credit cards, and even a mortgage is often seen as a positive thing.
How To Improve Your Credit Score
Improving a credit score is a gradual process, but it is always possible. Credit scores reflect your spending habits, so a simple place to start is by managing your budget and avoiding charging costs you can’t afford to a credit card. That causes debt to build up and results in bills you can’t pay and lowers your credit score. Instead, focus on paying off bills consistently and on time. This is the easiest aspect of your credit score to control. Even if you have a short credit history or lots of credit accounts, you can set budgets and prioritize paying bills when they are due. Make sure to keep track of your credit utilization as well. Avoid using a large percentage of your credit limit at once, and try to keep the amount under 30%. Making these changes and sticking to them for several months can result in a measurable improvement in your credit score which will only continue as you form positive money habits.
Blackhawk Bank is here to help you reach a solution for your financial needs. Contact us today for more information on personal finance and other inquiries.