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Understanding How Can You Effectively Monitor & Improve Your Credit Score Over Time
What is a Credit Score?
A credit score is a three-digit number that reflects a person’s creditworthiness. This number is derived using a set of criteria set by the major credit bureaus — Experian, Equifax, and TransUnion. A credit score is an estimation of a person’s creditworthiness based on records of payments and level of debt. Most lenders use credit scores to decide whether to lend money or provide services to someone. A person’s credit score is also used to determine interest rates, financial products, and other important financial decisions.
What Factors Make Up a Credit Score?
A credit score is made up of several different factors that include payment history, outstanding credit utilization ratio, length of credit history, types of credit, and new credit. Each factor weighs differently in a credit score from 1-35%.
- Payment History: Accounts for 35% of a credit score. Payment history consists of your past records for on-time payments of credit cards, personal and auto loans, mortgages and other debt. A delinquent or missed payment on any loan or credit card can negatively affect your score.
- Outstanding Credit Utilization Ratio: This measures how much of your credit you use. It accounts for 30% of your credit score. A lower utilization ratio is always in your favor. The lower the ratio, the better your score.
- Length of Credit History: This factor accounts for 15% of your credit score. A longer credit history will typically increase your credit score. Generally, a person’s credit score improves over time as they gain credit history and show responsible borrowing behavior.
- Types of Credit: This factor looks at the different types of credit you’ve used such as credit cards, installment loans and mortgage loans. It accounts for 10% of your score. A variety of credit types typically result in a higher score.
- New Credit: This accounts for 10% of your credit score. Too many recent inquiries or new credit accounts can cause your score to drop.
Ways to Monitor Your Credit Score
There are numerous methods and tools to help you monitor your credit score over time. Here are three easy ways:
- Annual Credit Report: Federal law allows consumers to obtain a free copy of each of their credit reports once a year from Experian, Equifax, and TransUnion. You can request your report online through AnnualCreditReport.com. It may take fifteen days to receive your report, but this is the best way to get an accurate report of your current credit information.
- Credit Score Monitoring Website: Websites like Credit Karma and Credit Sesame are popular options for monitoring your credit score. Both sites offer free credit score monitoring and tracking services, allowing you to keep tabs on your credit history and credit score throughout the year. These sites will also notify you of any changes in your credit score.
- Banking Apps: Many major banks now offer credit score monitoring services through their mobile apps. BBVA Compass and Wells Fargo, for example, both allow customers to view their credit reports and credit scores through their mobile apps. They also offer credit score trends, credit score advice and other educational resources.
Ways to Improve Your Credit Score Over Time
- Pay Bills on Time: Make sure to pay bills on time, every time as late or missed payments can negatively affect your credit score. Create payment reminders or set up payment plans as needed to help you stay on track.
- Check Your Credit Report: Stay aware of what’s being reported to the credit bureaus. If you see anything incorrect on your credit report, you can dispute it with the credit bureau or the party that provided the information to the bureau.
- Keep Utility & Other Accounts Up To Date: Cell phone, cable, Internet and utility accounts are reported to the credit bureaus in the same way as other types of accounts. Make sure they’re up to date and in good standing.
- Maintain Low Balances & Reasonable Credit Limits: Make sure to keep your balances below 25-30% of your credit limit and do not exceed it. If you do exceed the limit, try to pay off the debt as quickly as possible.
- Avoid Closing Accounts: Closing accounts will lower your available credit, which can lead to higher credit utilization, which can be detrimental to your credit score.
- Get Additional Credit: If you need more credit, consider getting a credit card or a loan from a bank or credit union. This can help boost your credit score over time. However, make sure to manage the new accounts responsibly.
Summary
Improving and maintaining a good credit score is a key factor for financial success. Your credit score can play an important role in determining the type of financial products or services you qualify for. To effectively monitor and improve your credit score over time, request your free Credit Report every year, use credit score monitoring services, and ensure that you maintain low credit utilization, pay bills on time, and keep accounts up to date. By following these steps, you can keep track of your credit score and make sure it stays in good shape.
References
- What Is a Credit Score?, Experian
- Check Your Credit Score, Wells Fargo
- Understanding Credit Scores, Credit Karma
- What Factors Determine Your Credit Score?, Credible Spending
- How to Improve Your Credit Score, Credit.com
What is the best way to check my credit score?
The best way to check your credit score is to use a reputable and secure website or mobile app, such as Credit Karma or Experian. These allow you to access your credit score free of charge, and many offer additional helpful features like credit monitoring, credit analysis and more.
You can also request a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian and TransUnion) once a year. This can help you better understand the factors affecting your credit score and keep track of your credit history.
What is a good free credit score checker?
Some of the most popular free credit score checkers are Credit Karma, Credit Sesame, and WalletHub. All of them offer free credit score monitoring and some additional features, such as free credit reports, free credit score simulations, and credit education resources.
What are the best free credit score checkers?
1. Credit Karma
2. Experian
3. FreeScore360
4. Credit Sesame
5. Quizzle
6. WalletHub
What is a good credit score range?
A good credit score range is typically considered to be any score over 700. However, scores over 750 are generally considered to be excellent.
The specific score requirements vary depending on the lender and the type of loan being sought. For example, lenders may require a higher score for a mortgage than for an unsecured loan. Additionally, your score may vary by credit bureau due to differences in their scoring models.
What is a good credit score to buy a house?
A good credit score to buy a house is typically considered to be a score of 700 or higher. However, most lenders will look at other factors, such as income and assets, to determine whether you are qualified to buy a home. Additionally, some lenders may require a higher credit score than others.
What is the minimum FICO score for buying a house?
The minimum FICO score you need to qualify for a mortgage loan to buy a house is generally considered to be between 620 and 660, depending on the lender and type of loan you are seeking.
What is a good FICO score to buy a house?
A good FICO score to buy a house is typically considered 700 or higher. However, some lenders may consider a minimum score of 680 for certain loan programs.
Additionally, your score may vary by credit bureau due to differences in their scoring models. Your credit history and credit utilization ratio are also important factors that lenders consider when deciding whether or not to approve your loan application.
What is a fair or bad FICO score?
A FICO score is a three-digit number ranging from 300 to 850, with higher scores indicating higher creditworthiness. A “good” FICO score is considered to be 670 or higher. A “fair” FICO score is 580-669, and a “bad” FICO score is anything below 580.
What is an excellent FICO score?
A FICO score of 800 or above is considered exceptional. This score is in the top tier, meaning the individual has a low amount of debt and an excellent credit history.
What is the highest FICO score possible?
The highest possible FICO score is 850. However, most people have scores that are below 850. The national average FICO score is 703.
What is a good FICO score?
A good FICO score is considered to be above 670. Scores between 670 and 739 are considered to be good, while scores of 740 or higher are considered to be excellent.
What is a bad FICO score?
A bad FICO score is usually considered any score below 580. That being said, lenders will often have different qualification requirements for different loan types. A score below 580 makes it much harder to qualify for a loan, but it is not impossible.
What is a good FICO score?
A good FICO score is considered to be 670 or higher. Scores between 680 and 739 are considered to be good, while scores of 740 or higher are considered to be excellent. A good credit score can help you get lower interest rates on loans, as well as better terms and conditions.
What is the highest FICO score possible?
The highest FICO score possible is 850. Most people have scores that range from 300 to 850, with higher scores indicating higher creditworthiness. However, most people have scores that are below 850. The national average FICO score is 703.
What is considered a good FICO score?
A good FICO score is considered to be 680 or higher. This is the score range where lenders view borrowers as having good credit history. Scores of 750 or higher are considered excellent.
What is the average FICO score?
The average FICO score is 704.