Like your blood pressure or cholesterol level, your credit score is a key indicator of your overall financial health. A good credit score can help you get an apartment, a job, or a new credit account. On the other hand, a low score can hold you back from achieving your personal and financial goals in life. In this article, we’ll explain what a credit score is, why it’s important, and how you can build, improve, or maintain your credit score.
What is a credit score?
Simply put, a credit score is a three-digit number intended to show lenders the potential risk of loaning money to you. The FICO® Score is one of the most well-known credit scoring models, but there are others out there. Whatever the model, credit scores are calculated from the information on your credit report such as the types of credit accounts you have, your on-time payment history, and more.
Generally, credit scores range from 300-850. The higher your score, the easier of a time you’ll have getting new loans and credit card accounts. You’ll also enjoy better rates and terms, as borrowers with a good credit history are considered low-risk for defaulting on a loan. The possible range of credit scores can be broken down as follows:
- Exceptional: 800-850
- Very Good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
Your credit score is an important indicator of your overall financial health. It’s important to monitor your score, take steps to raise it if needed, and learn how to maintain a good score.
Be Aware of Your Credit Score
Do you know what your credit score is right now? Even if you’re not going to apply for a new credit account anytime soon, you should still be aware of your score. Luckily, American National customers can access a free credit score report from our online and mobile banking platforms. If you have one or more credit cards, you may have access to your credit score through one of those accounts as well.
In addition to keeping an eye on your credit score, you should also look at your credit report somewhat regularly to check for any errors or signs of fraud. Under Federal law, you can receive a free copy of your credit report once a year from each of the credit report companies. Your credit score is based on the information in your credit report, so it’s important to make sure everything is accurate and up-to-date.
Now that you know how to check your credit score, let’s look at the steps you can take to improve a low score or maintain a good one. If you’re just starting out in life, these tips will also help you establish a good credit history.
Pay Your Bills On Time
Your payment record is one of the factors that contributes to your credit score. Making sure to always pay your bills on time is one easy way to maintain a healthy credit score.
Juggling so many different bills and due dates that it’s hard to keep track? Use our Bill Pay tool in Online Banking to schedule payments in advance, enroll in payment confirmations, and set up auto payments so you’ll never miss a due date.
Apply for a Credit Card (and use it responsibly)
If you are starting with very little credit history, you may want to open a credit card for personal use in order to start building your score. One thing to keep in mind with credit cards is that you shouldn’t charge more than you can afford to pay off in full each month. Carrying a credit card balance can be expensive with a higher interest rate than other types of loans. It can also hurt your credit score, as we’ll see in the next tip.
Use Less than 30% of your available credit
This factor is known as your credit utilization rate. Using more than 30% of your total available credit at any given time can lower your credit score. Lenders view a high credit utilization as a sign of potential financial distress or an inability to manage money.
One quick way to improve your credit utilization rate is to request a credit line increase. However, just make sure you have a plan for staying below the 30% threshold. If you just rack up a higher balance, your credit score will still be lowered and you’ll be in more debt.
Apply for a loan (and pay it regularly)
If you have a savings account to use as collateral, you could apply for a small loan to help you build your credit. If you have a small personal project, such as a a home improvement/remodel, you could open up a loan or line of credit with your bank to fund this. Then, you can regularly pay off your debt each month in order to contribute toward your credit score.
If you’ve never had a personal loan before, getting one could help your credit score in the long run by adding to your credit mix. Just remember that the credit inquiries lenders perform before approving your application could temporarily lower your score. You don’t want to apply for multiple credit accounts at the same time.
Utilize debt consolidation
If you have multiple credit accounts with different monthly due dates, or your total debt balance is so high that you can’t imagine ever digging out of it, utilizing debt consolidation may help.
Consolidating your debt means taking out a new loan to pay off one or more existing loans or credit card balances. In the process of consolidating, you may be able to lower the interest rate you’re paying as well. Plus, having just one monthly payment can make your life easier.
Check your credit score with Online Banking!
Credit Score from SavvyMoney is a free service provided by American National to help you understand your credit score and access your full report daily. If you’re already an American National customer, enroll in or login to online banking. If you don’t have an account with us yet, you can open a new account online or visit one of our branch locations in Virginia and North Carolina.
Looking for more financial advice? Check out our recent blog post on meeting your financial goals.