One of the most important numbers in your financial journey isn’t the number in your bank account (while that is important, too). It’s your credit score. Generally speaking, credit scores range from a low of 300 to a high of 850, with the national average hovering around 700, according to Equifax. Credit scores, and creditworthiness, are judged by lenders, employers, and more to help them gauge an individual’s financial responsibility.
Credit scores can be grouped as follows:
- 800 and above: excellent
- 740 to 799: very good
- 670 to 739: good
- 580 to 669: fair
- 579 and below: poor
Higher credit scores will often lead to easier loan approvals with lower interest rates, while credit scores in the fair and poor range may have a harder time securing financing for loans and will generally be subjected to higher interest rates (and higher payments).
Of course, everyone’s financial situation is different. A perfect credit score doesn’t automatically mean you’ll repay a borrowed amount and a low credit score doesn’t always indicate financial irresponsibility. For example, major life events like a divorce, loss of a job, or death in the family, can all severely impact your credit score.
If you’re interested in moving the needle on your credit score, there are a few things you should keep in mind that will help you gradually increase your score over time. Remember that there’s no “overnight” way to improve your credit.
Make On-Time Payments
Payment history is one of the most important factors in determining your credit score. Always pay your bills on time, including credit card payments, loans, and any other obligations you have. Late payments can significantly impact your score negatively.
Keep Credit Utilization Low
Credit utilization refers to the amount of credit you're using compared to your total credit limit. Ideally, you should aim to use less than 30% of your available credit at any given time. Keeping this ratio low shows lenders that you can manage credit responsibly.
Have a Mix of Credit Accounts
Having a diverse mix of credit accounts can also positively impact your credit score. This might include credit cards, installment loans (like auto loans or personal loans), and retail accounts. However, only take on credit that you can manage responsibly and avoid opening multiple accounts within a short period, as this can lower your score temporarily.
Not sure where to start? We can help! As a USX FCU member, you have access to Greenpath Financial Wellness, a free tool to help you manage your finances, pay down debt, and more!
