Your credit score is a rating that signals your financial reliability to lenders. A good score - based on payment history, credit mix, length of credit history, and income - helps you qualify for possibly better loan terms and financial opportunities.
If you recently apply for a mortgage, car loan, credit card, or other type of credit,you may receive a “trigger lead.” Learn about trigger leads and how to opt out.
Why You Should Review Your Credit Report Annually
Annually reviewing your credit report ensures it contains only your information while also helping you effectively monitor and manage your credit score. It’s important to distinguish that credit scores are not part of your credit reports. You may have more than one credit score, and these scores may vary since not all lenders report to all three nationwide credit bureaus. *
Did You Know? You are entitled to a free copy of your credit report every 12 months from each of the three credit bureaus. Request Your Free Credit Reports.
* In the U.S., there are three major credit bureaus – Experian, Equifax, and Transunion. These three agencies report, update, and store consumers' credit histories.
What is a FICO Score?
FICO is an analytics software company that produces the most widely used consumer credit scores in the United States. FICO scores are essential in the lending industry, with over 90% of top lenders requiring a FICO score when making credit decisions for mortgages, auto loans, credit cards, and personal loans.
If you know your scores, you can assess how likely it is that a loan application will be approved, and whether the creditor is likely to offer favorable terms. You can check the lender’s website to see if there is a threshold and which scoring model the company uses; however, some companies may not share this information.
Understand How Your Score Is Calculated
It’s important to take into consideration how your score is calculated. The three agencies do not calculate scores exactly the same, but there are five main factors they all use when calculating a credit score:
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- Payment history - This is important because it only takes one missed payment to impact your score.
- Total amount owed - Using more than 30% of your available credit is a red flag to creditors.
- Length of credit history - A longer credit history improves your score.
- Types of credit - A mix of credit accounts makes a positive impact on your score.
- New credit - Too many recent credit account applications may signal risk and negatively affect your credit score.
Improve Your Credit Score
Your credit score changes every time information is updated and can rise or fall based on the new information. Here are some ways you can improve your credit score:
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- Pay your bills on time - Six months of on-time payments are required to see a noticeable difference in your score.
- Up your credit line - Ask for credit limit increases on cards in good standing. This can improve your credit utilization rate since you'll have more available credit. Just remember not to spend the extra amount - the goal is to keep your usage low relative to your limits.
- Minimize your debt - Familiarize yourself with your credit utilization ratio. This is the total amount of debt you carry as compared to your combined credit limits.
- Don’t close a credit card account - Keep credit card accounts open even if unused. Closing them can increase your credit utilization rate, which should stay below 30% to maintain a good credit score.
- Consider engaging a reputable credit repair company - They can communicate with creditors and credit bureaus on your behalf for a monthly fee. Stellar Bank does not offer credit repair services.
Information sources: Experian, Experian and the Federal Reserve.
Educate Yourself at the Stellar Bank Financial Education Center
To educate our community and customers on how credit scores and reports work, Stellar Bank has partnered with EVERFI to create our Financial Education Center. With these tips, we can help you develop healthier credit habits. Our financial center provides access to modules that you can complete in less than 10 minutes.
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To discuss your borrowing needs and to learn more about Stellar Bank Loan Products contact an experienced Stellar Banker today.
