Take control of your credit score
HARTFORD — The Connecticut Better Business Bureau urges consumers to understand which habits can lower or raise their credit score.
A credit score is a three-digit number that gives lenders a snapshot of your creditworthiness. The range is between 300 – 850. The higher the number, the better. Though there are several companies that calculate credit scores, the one that dominates the market is the FICO (Fair Isaac Corporation) score.
“Your credit history and score follow you throughout your life and can have far-reaching consequences,” said Connecticut Better Business Bureau spokesman Howard Schwartz. “It is essential that consumers know what is in their credit files, to prevent having a credit application rejected.”
Lenders use credit scores to determine who qualifies for a loan, at what interest rate and credit limits. The score is generated by an algorithm that takes several factors into account, including your credit history, how much credit you have, and how much of your credit is being used.
In order to improve your credit score, you have to know what is in your credit report, which you can obtain free of charge at annualcreditreport.com. Your credit report, as opposed to a credit score, reflects your activities that are used to calculate your degree of financial risk.
The most important elements that determine your appeal to lenders are your payment history, such as whether you tend to miss payments or are late paying bills (35 percent); the amount you owe (30 percent); the length of your credit history (15 percent), new lines of credit (10 percent) and the types of credit you use (10 percent). A problem with these can be a deal-breaker in the eyes of a potential lender.
Your credit report will show you all of your creditors and reveal any errors that might be pulling down your credit score. If you find any errors in your credit report, contact the credit reporting company immediately.
The Better Business Bureau offers tips to help you improve and maintain a healthy credit score:
Establish a credit history – If you don’t have any credit cards, consider opening an account, use it sparingly and pay it off when you get your statement. Someone with no credit history is considered a higher risk than someone who shows they know how to manage credit.
Always pay on time – Lenders consider an individual a credit risk if they miss or are late paying bills. That sort of history can definitely lower your credit score.
Set up bill pay reminders – Mark payment due dates on your calendar or arrange auto payments at your bank.
of financial risk.
Don’t max out your credit – There is nothing wrong with having credit cards with a balance on them. That does not make you a credit risk unless your debt load takes up the majority of your available credit and may be a sign of an inability to pay down debt.
Pay off highest balances first – It’s tempting to want to start with smaller balances first, however, if you tackle a large balance on a particular line of credit, it can raise your score because you will be freeing-up of a larger portion of your available credit.
AnnualCreditReport.com – This is a government–sanctioned entity to obtain your credit report free of charge. You will be required to give your name and Social Security Number for authentication purposes. To avoid becoming the victim of criminal phishing activity, type in the website’s address instead of using a link in an email, on a website, or through social media.
You may pull your credit report every 12 months directly from the three credit reporting companies: Experian, Exquifax and TransUnion. BBB recommends getting one report from each of the companies every four months, to monitor any changes throughout the year.
Where can you see your credit score? Until recently, most consumers could only obtain that number if it was bundled with a paid credit monitoring service. Now, according to the Consumer Financial Protection Bureau, more than 50 million consumers get their credit score every month on their credit card statements.
You may also see your credit score when a lender looks it up. All you have to do is ask.
To order a credit report, visit annualcreditreport.com or call 877-322-8228. You can find additional information on managing your credit and other finance at bbb.org.