How much do you know about your credit score?
This three-digit number reflects the details of your financial footprint—and it’s used to gauge your creditworthiness as a borrower.
FICO scores, for example, are the credit scores most lenders use to help assess a borrower’s risk—and it can affect how much a lender will lend and at what terms. FICO scores range from 300–850 and pull data from the three main national credit bureaus: TransUnion, Experian, and Equifax. The higher the score, the better.
More than half (51%) of U.S. credit users have subprime credit scores, according to the 2016 Assets and Opportunity Scorecard released from the Corporation for Enterprise Development, a national nonprofit based in Washington, D.C., that aims to expand opportunity for low- and moderate-income American households. Historically, scores below 640 are considered subprime and, therefore, riskier from a lender’s perspective. (Hello, higher interest rates!)
And being “credit invisible” can also shackle consumers’ access to loan opportunities. According to the U.S. Consumer Financial Protection Bureau, 26 million U.S. adults have no reported credit history at all—and the impact can extend beyond borrowing. Auto insurance companies, landlords, utility providers, and employers run credit checks, too. If there’s nothing on record, that might raise a red flag.
The good news is that credit scores aren’t set in stone. They can change—for better or worse—depending on your financial health and habits. The key is to establish a routine that keeps your line of credit revolving without maxing out limits.
- Keep your total balance owed as low as possible—and pay your bill on time, every time. While you want to aim high for credit scores, set your sights lower when it comes to total balance owed. Whether it’s one credit card or five, keeping a low balance with a history of on-time payments will boost your overall credit score. Owing money on a credit card doesn’t automatically make you a high-risk borrower, but using a high percentage of your available credit could signal that you’re overextended and more likely to miss payments.
- Request credit line increases, but keep spending in check. If you have the option to request a credit line increase without a credit inquiry, take advantage of it. With more available credit, your credit utilization ratio will improve—as long as you don’t charge to your limit. Just confirm with your credit issuer whether or not a hard pull will be made for the request, because doing so can ding your credit score.
- Don’t close paid-off credit cards. A long, positive credit history is the best way to boost your credit score and keep it high. While it might be tempting to close credit accounts once you hit zero balance, it helps to have more available credit that’s unused. When you close a credit card, you close that line of available credit along with it. Instead, keep the card open and use it for small purchases that can be paid off in full each month.
- And remember to closely monitor your monthly credit report. Check in with your credit report on a monthly basis to make sure everything looks up to date and accurate. Credit scores don’t change overnight, but taking consistent steps toward better credit management now will lead to real improvements later. Subscribe to credit monitoring services to track your progress and alert you to any changes so you can address them in real time.
Looking for more tips for better money and credit management? Check out more of Comenity’s financial resources.