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Know What Goes Into Your Credit Score

If you are one that pays your bills on time, you deserve some sort of reward. That is exactly what your credit score is for. Basically, your score can tell lenders, credit card companies, landlords, and even employers how much of a credit risk you are to them.

So check out what your score means, what goes into making your score, and some tips on how to improve it!

What does my number mean?

The most used credit score is called your FICO score, which will normally range from 300-850.

750 or Higher: Having a score higher than 750 will put you in the top 20% of all U.S. consumers. This will lead to the lowest interest rate available when applying for loans.

700-749: If you have a score that falls in this category, you are still sitting at above average. Here, you should feel pretty confident when applying for a loan but should know that your score can still be improved.

640-699: With a score in this category, you will find yourself at the national average. This should tell you that you have plenty of room to grow and that you should look for new ways to establish credit.

580-639: Having a score in this category, you find yourself below the national average. With this score, you may or may not be accepted for loans or new credit, and if you are, the interest rate will be often fairly high.

579 or Lower: This is the lowest category. If your score sits below 579, you should definitely look for new ways to establish credit so that you are able to take out necessary loans when that time comes.

Debt can be scary, but it is extremely difficult to establish a solid credit score without taking on some amount of debt. Do not be credit invisible and begin to establish a credit history.

The five factors that go into making a credit score:

35% – Payment History: Your payment history carries the biggest wait of all five factors. It is vital that you make your monthly payments on time so that your score is positively affected. The way you handled money in the past is often the way you’ll handle it in the future.

30% – Amounts Owed: Lenders want to see that you don’t overuse your credit. Often times, you should want to keep 75% of your credit line available at all times to increase your score.

15% – Length of Credit History: Your credit score will take into account the oldest and newest accounts into consideration. The longer you have an account open, the better. Never cancel old accounts, even if you are no longer using them.

10% – Types of Credit: Your score considers a mix of types of credit. This will include credit cards, student loans, mortgages, etc. Make sure you don’t open too many or too few of one type of account.

10% – New Credit: Don’t open multiple new lines of credit in a small amount of time. This could lead to hard inquires that will negatively affect your credit score. Hard inquires occur when lenders or creditors request your credit report to approve you for a loan or credit card.

Credit cards are not the culprits; abuse of credit cards is!

Tips to help improve your credit score:

  • Check your free credit report quarterly to make sure there are no inaccuracies on your report. You can pull one free report from each of the credit bureaus per year (Equifax, Experian, Transunion)
  • Pay the bills on time to show that you are a responsible consumer
  • Reduce your debt. Each time you make payments on your debt, your credit score will improve
  • Put the shared utility bills in your name and make on time monthly payments
  • Shop for loans quickly. If lenders make multiple hard inquires within a two week period, they will only count as one inquiry.

Nolan Keim
Peer Counselor I
Powercat Financial Counseling
www.k-state.edu/pfc

 

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