The higher your credit score, the better off you'll be.
Banks, credit card companies and other businesses use credit scores to estimate how likely you are to pay back money you borrow. A higher score makes it easier to qualify for a loan and get a lower interest rate, which saves you money.
Many scores range from 300-850, but different companies use different ranges. The following information from the Bureau of Consumer Financial Protection provides valuable information and tips you can put to use.
You May Have More Than One Credit Score
Your credit card score could be different from your home loan score, and the scores you purchase online could be different from both of those. Here's why you can have more than one score:
- Lenders use different scores for different products.
- There are many different credit scoring formulas.
- Information can come from different credit reporting sources.
For some people, these differences aren’t that big. But because lenders use different scores, you might qualify for lower rates with one lender and not another. That's why it can pay to shop around.
Developing Your Credit Score
Credit scores are generally based on information in your credit reports, which is reported by your creditors to credit reporting companies. The three biggest credit reporting companies are Equifax, Experian and TransUnion.
These are some of the factors that affect your credit score:
- How many credit accounts you have
- How long you’ve had those accounts
- How close you are to your credit limit
- How much credit you have left
- How often your payments have been late
Increasing Your Credit Score
The way you manage credit and debt makes a difference. Here are some things you can do to keep your credit score moving in the right direction.
- Pay your bills on time, every time. Setting up automatic payments, or electronic reminders, is an easy way to get your payment in by the due date to avoid late fees and other penalties. If you have missed payments, get current and stay current.
- Don’t get close to your credit limit. Credit scoring models look at how close you are to being “maxed out,” so try to keep your balances low in proportion to your overall credit limit. Experts advise keeping your use of credit at no more than 30 percent of your total credit limit. A long credit history will help your score. Your score will improve the longer you have credit, open different types of accounts, and pay back what you owe on time.
- Be careful closing accounts. If you close some credit card accounts and put most or all of your credit card balances onto one card, it may hurt your credit score if you are using a high percentage of your total credit limit. Frequently opening accounts and transferring balances can hurt your score, too.
- Only apply for credit you need. Credit scores look at your recent credit activity as an indicator of your need for credit. If you apply for a lot of credit over a short period of time, it may appear that your economic circumstances have changed for the worse.
If you have questions, please visit one of our branches in West Virginia, Virginia, North Carolina, or Tennessee.
The Importance of Credit Reports
Mistakes in your credit reports could damage your credit history and credit score, so make sure to check your reports regularly. By law, you're entitled to receive one free credit report from each of the big three credit reporting companies every 12 months. Go to annualcreditreport.com or call 877-322-8228 to request your report.
When you get your report, look for:
- Mistakes in your name, phone number, or address
- Loans, credit cards or other accounts that are not yours
- Reports saying you paid late when you paid on time
- Accounts you closed that are listed as open
- The same item showing up more than once (like an unpaid debt)
Fixing Mistakes
If you find incorrect information in your credit report, contact the credit reporting company and the creditor that provided the information. Explain what you think is wrong and why. Include copies of documents that support your dispute.
Your credit reports will come with instructions on how to dispute mistakes. You may also contact the Bureau of Consumer Financial Protection for assistance if you have an issue with a financial product or service.
