What’s the first thought that comes to mind when you think about your credit score? Is it a number you’re confident you understand, or is it a mystery you’ve yet to figure out? Fortunately, understanding your credit score doesn’t have to feel so elusive.

Your credit score impacts your borrowing power and how much you pay when you do need to borrow money. Like it or not, it’s the snapshot lenders, cell phone companies, or credit card companies rely on heavily when determining if you’re approved for a loan. Not only is it worth paying attention to, it’s a number you can impact and improve.

What Is a Credit Score?

At first glance a credit score may appear like a randomized, three-digit number assigned to you. However, this score is far from arbitrary and it’s a result of numerous factors.

Think of your credit score as your financial reputation in number form. It’s a number usually between 300 and 850 that tells lenders how likely you are to pay back money you borrow. The higher your score, the more trustworthy you look to banks and credit card companies.

Factors Making Up a Credit Score

A credit score is made up of five main categories, each with a different weight. It’s calculated based on information found in your credit report. Various credit scoring systems use their own calculations, but most lenders use a credit scoring system known as FICO, short for Fair Isaac Corporation. The factors making up a FICO score include:

  • Payment history (35%): The record of on-time payments you’ve made each month, typically for the last seven years
  • Amounts owed (30%): The amount of available credit you’re using, also referred to as credit utilization
  • Length of credit history (15%): The length of time your credit accounts remain open
  • New credit (10%): The amount of new credit accounts applications in a defined period of time
  • Credit mix (10%): A calculation showing the mix of credit accounts, including loans, credit cards, and/or retail accounts

How to Improve Your Credit Score

Improving your score takes a little consistency and a few smart habits. Thankfully, you don’t need to be a finance expert and a few simple actions can give it a boost, including:

  • Pay your bills on time: Try not to post a late payment. Keep in mind, even the minimum payment counts.
  • Keep your credit card balances low: Pay off your balances each month if you’re able, or keep as low of a balance possible. Ideally, stay under 30% of your credit limit for a better credit utilization number.
  • Limit the number of new accounts: Opening too many in a short time (usually one year) can make you look risky.
  • Keep older accounts open: Rather than closing accounts, keep them open. The longer your history, the better.
  • Check your credit report for errors: You can regularly check your reports for free and dispute any entry that doesn’t look right.

Your credit score is one piece of your financial puzzle. Space Age Credit Union offers several products and services that can help you with your entire financial profile, including financial wellness. Contact us today.