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Key takeaways:
- Credit bureaus use secret formulas to calculate your credit score, but a good credit score comes down to managing credit responsibly.
- There are simple credit tips you can apply on a day-to-day basis, and you’ll see results in the long term.
- PFCU is here to help you build credit with accessible banking products and personalized advice.
However, you don’t need insider knowledge to take control of your credit. With just a few simple daily habits, your score can climb faster than you think.
We’re here to share some tips on how to improve your credit score and unlock a better financial future.
What Is a Credit Score, Really?
You can think of your credit score as a number that reflects how good you are at managing credit. By extension, this number also indicates how responsible you are with money in general.When a business runs a credit inquiry, it looks at this number to make a decision. It tells them how much of a risk they are taking by lending you money, issuing a credit card or letting you rent a place.
Building credit matters because a low score or a lack of credit history can get in the way of accessing many financial products, from a simple used car loan to a mortgage.
The exact formulas used by credit bureaus are secret, but these five factors are important and should give you a rough idea of your credit rating:
- Your payment history is the most important factor.
- Next, the amount you owe on your loan and credit card balances impacts your score the most, especially in relation to your credit utilization rate (how much of your credit you’re using compared to what’s available).
- The length of your credit history also matters.
- There is an emphasis on new credit, with multiple hard inquiries and new accounts potentially hurting your score.
- Lastly, the types of credit you use and manage matter. The more diversified your credit mix is, the more of a boost you’ll get to your score.
Credit Tips: 5 Simple Ways to Boost Your Credit Score
If you’re wondering how to improve your credit score, you should know that it’s a long-term game. There is a reason why we talk about building credit; it usually takes time to see your score go up.A strong credit report is the result of many small daily decisions.
Utilization Matters
You need to have credit cards and maybe a loan or two to build a credit history. Pick accounts that make sense for you, and think about getting a credit union credit card if you’re new to managing credit.
Always Pay on Time
Be careful not to charge more than you can repay, and budget for your credit card and loan payments. Your payment history accounts for more than a third of your score, and a single missed payment can be a serious hit.
Keep Your Utilization Rate Low
There are two reasons for this:- Low utilization means you’re not overcharging your cards, and it’s easier to keep up with payments.
- Carrying over a large balance every month will hurt your score.
Don’t Open Too Many Accounts At Once
When you open a new credit card or loan, an inquiry shows up on your credit report. You can lose as many as five points per inquiry, and they can take as long as two years to disappear from your report.You need accounts to build your credit, but only open the ones you need and look into diversifying with different types of accounts.
Dispute Errors
You can get a free credit report from each of the credit bureaus once a year. Check it, and dispute anything that doesn’t look right.Don’t Close Old Accounts
Even if you don’t use old credit card accounts anymore, keep them open and active with a few small purchases. Having old accounts shows you have a long history of managing credit and will improve your score.Credit management doesn’t have to be hard. Be consistent with these simple credit tips and you will see an improvement.
How PFCU Can Help With Improving Your Credit Score
At PFCU, we understand your credit score matters for building a better future. We have several options to help you boost it:- We offer personalized advice. We can guide you as you pick the right credit cards and loans for your needs or provide recommendations for helping you pay off debt if it’s hurting your credit.
- If you have a limited credit history or need to rebuild your credit, we can help. We look at a wide range of factors beyond your credit score to make our products more accessible, and we have options like student credit cards to help you build credit for the first time.
- Our online and mobile banking tools make it easy to schedule payments so you never miss a due date. You can also keep track of where your money is going for better budgeting.