And Other Credit Score 101 Lessons
Buying a new car. Negotiating interest rates. Deciding your insurance premium. A credit score isn’t just a mythical number out in cyberspace. It’s a financial resource that lenders use to decide who gets the best loan rates, cell phone plans, or even the home or apartment you’ve been dreaming about. If your score is good, you can leverage it into great deals. If it’s not, it can leave you missing out on opportunities, or paying more.
Read on to learn about how to increase your credit score.
Credit score 101: How do you find out your credit rating?
Keeping tabs on your credit rating can help you control your financial situation. The first thing to know—everyone has dozens of credit scores. All your scores are based on three reports from TransUnion®, Equifax® and Experian®. Those reports include information about how you pay bills, where you live, if you’ve been sued or arrested, or if you’ve filed for bankruptcy.
The most common scores are:
- FICO® score, the most popular, which dates back to 1989
- VantageScore, an alternative to FICO, introduced in 2006
Some lenders also use in-house models to get your custom risk score.
How do they calculate credit score?
Scores are calculated primary using these factors: your payment history, debt owed, the length of your credit history, how much new credit you have and your overall credit mix.
Just like you, your credit score is unique—and how much these categories affect your score will depend where you are in life. If you’re new to credit, your score will be calculated differently than someone with decades of credit history. And as your history changes, the way your score is calculated will change, too.
If you pay attention to these scoring categories, you can focus on keeping your score in the green.
How to access your credit score and reports
There are several ways to find your credit scores and reports, even for free and without a negative impact to your score. Here are several free options to consider:
- Personal finance websites like NerdWallet®, which also offers free credit scores and report information.
- Credit card company programs like Discover Credit Scorecard, which offer free access monthly to your score without being a cardholder.
- Credit card companies like CitiBank®, Bank of America® and Chase Bank, which provide free cardholder access to scores monthly.
- Equifax, TransUnion and Experian, where you’re entitled to receive a copy of your credit report free every year.
- Credit unions, like Greater Alliance Federal Credit Union, can help if you’d rather not use a credit card company.
Who can access your credit report?
Applying for an auto or home loan and opening a bank account aren’t the only things that prompt a credit score inquiry. Other institutions like student loan providers, utility companies, creditors and even your employer may look at your credit scores.
Rest assured, though, your credit reports are not public information.
What do they consider a good score?
Your three-digital credit score can fall into various ranges, depending on the credit bureau. In general, a score around 700 or higher is considered good. But if your score comes in lower, don’t worry. There are steps you can take to improve your credit score now.
How to improve your credit scores
- Pay all your bills—on time. It’s a good predictor of future behavior that lenders like. It shows them you’re reliable.
- Bring overdue payments current and pay off debt. If you’re struggling, a debt management expert like Greater Alliance can help. We’ve partnered with GreenPath Financial Wellness Solutions to provide a free financial management program that will get you back on track.
- Keep credit card balances low. Your credit utilization ratio is a big factor in your score. Lenders typically want to see you using less than 30% of your total credit limit.
- Keep zero-balance credit cards open. Having fewer open accounts can affect your utilization ratio and lower your score.
- Limit how often you apply for credit. That includes cards and loans that result in multiple “hard inquiries,” which can bring your score down.
- Dispute any errors on your credit card reports. Check your reports at TransUnion, Equifax and Experian each year, and get any inaccuracies corrected quickly.
FICO also offers tips for improving your FICO score.
Fixing credit report errors
If you’ve noticed an error on a credit report, it’s up to you to contact the reporting company and information provider to correct it.
First, contact the reporting company in writing. Let them know specifically what you think is inaccurate. You can use this sample dispute letter.
By law, the reporting company will investigate the error, usually within 30 days. They’ll then send their findings about the error to the organization that provided the information, so that organization can investigate and report back. If it was indeed an error, they’ll notify all three credit reporting companies to have it fixed in your file.
Next, you’ll need to tell the information provider in writing that you dispute an item in your credit report. You can use this sample letter.
We can help you improve your score
We have partnered with GreenPath Financial Wellness and their NFCC-certified credit counselors can walk you through a free review of your credit report. They can explain how to read the report and how credit scoring works, and answer your questions. Together we’ll make a plan for managing your credit score to support your goals. If you have questions about credit reporting or need help with debt management, call GreenPath at 877-337-3399, or schedule an appointment for additional information. They’ll be happy to discuss all your options and can help you manage debt and get your score back to where it should be.