Know Your Credit Score and How to Improve It!

Your credit score is an important factor in major financial decisions like mortgage qualification. It’s based on your history as a borrower, along with several other patterns of financial behavior. A credit score is a three-digit number that typically ranges from 300 to 850. If you have a low score, it can indicate to a lender that you could be more likely to pay late or default on a loan. Conversely, the better your score, the better the rates you’ll qualify for with mortgages, auto loans, credit cards, and other types of loans.

Who Decides What Your Score Is?

Your credit score is based on information in your credit reports or your credit file. Three main credit reporting bureaus — Experian, Equifax and TransUnion — are in the business of gathering information for your credit file. They get that information from financial institutions and public records. The credit reporting bureaus provide the information that they’ve gathered for your credit file to the credit scoring agencies. These companies then calculate your credit scores.

What Determines Your Score?

Here is what determines your score in order of most-to-least impactful:  

Payment History (35% of your score) 

If you always pay your bills before the due date, then you will nail this part of your credit score. Paying late or missing a payment will harm your score. If you’ve had a bankruptcy, foreclosure, or defaulted on a loan, your score will dip. 

Amounts Owed (30% of your score)

How much you currently owe counts for nearly one-third of your score. It’s also based on your credit utilization ratio, which is how much of your available credit you’re using. Someone who has $1,000 worth of debt on a credit card with a $2,000 limit has a higher credit utilization ratio (50%) than someone who has $1,000 worth of debt on a card with a $10,000 limit (or 10%).

Length of Credit History (15% of your score)

This category considers how long you’ve had your credit accounts, including the age of your oldest account and the average age of all your accounts. 

New Credit (10% of your score)

Lenders look at the number and type of new accounts and requests for credit you’ve made. Applying for a lot of new credit cards in a short time period signals to a lender that you are in a financial tight spot and may be more risky to lend to. However, the algorithms recognize when consumers are rate shopping for things like mortgages and student loans. If those inquiries fall within a two-week window, they’ll only count as one hard pull on your credit. 

Credit Mix (10% of your score)

Variety is the spice of life and credit scores. This part of the formula looks at the types of credit accounts you have. Ideally, you’ll show a mix of loans that include revolving accounts (like credit cards), installment loans (auto loans) and retail accounts like store cards.

How can I improve my score?

It takes time and patience to build a solid credit history. A few rules of thumb to follow that can help you on the path to getting or maintaining a good credit score:

● Establish credit if you have little to none: Some women may be surprised to find that they have little to no credit. Perhaps you’ve been an authorized user on your partner’s credit card, or you’ve been the primary caretaker for your family and haven’t applied for any independent accounts. Protect yourself and build credit if this is the case. There are credit cards designed for people with little to no credit. Verity offers a Platinum Visa card that can help you with this. This card has no annual fee and features our lowest interest rate. For more details, visit our credit cards page.

● Pay your bills on time every month: Since timeliness of payments has the biggest impact on your score (35%), staying on top of your due dates is paramount to keeping your score from getting dinged.

● Don’t close your oldest accounts: Having a long credit history can show lenders that you’re able to pay your loans on time and that you’re a good candidate for credit. If your oldest card is one you rarely use, either keep it active by using it for the occasional small purchase or ask the issuer if you can do a product change to a card that’s a better fit for your spending habits. That way, you’ll still keep the age of your account, and your lender won’t stop reporting your good behavior.

● Avoid opening too many new accounts at once: It can be tempting to apply for several credit cards within a short period to take advantage of lucrative sign-up offers. However, too many inquiries can temporarily drag down your score. Plus, sign-up offers typically require minimum spending amounts, which could mean spending more than you normally would just to get that welcome bonus. 

● Stay well under your spending limits: Bumping up against the credit limit on your cards can be a signal to lenders that you’re spending beyond your means. Try to keep your credit utilization ratio at 30% or less for the optimal impact on your score. If you’re applying for a mortgage or other large loan in the next several months, keep your spending to less than 10% of your available limit.

● Check in on your credit report to make sure there are no inaccuracies: You can (and absolutely should!) see what the credit bureaus have on you. They legally have to share that information. You can now get your credit reports for free — you can pull your credit reports free each year from each of the bureaus by going to annualcreditreport.com. Note: You can see your credit report for free, but not your credit score, but that’s okay. When you pull your credit report, you can immediately see if there are any errors that need to be corrected and where you can improve. 

Get a Free Credit Report

Every week, you can access your credit report for free (without your score) by visiting annualcreditreport.com. This free service allows you to review your report for any inaccurate or derogatory information.* Some increases in your credit can happen within 30 days. Additional increases can take 3-6 months. You can also access your credit report (with your score) for a small cost by going directly to the three credit bureaus.

• Equifax: equifax.com or (800) 525-6285
• Experian: experian.com or (888) 397-3742
• TransUnion: transunion.com or (800) 680-7289

 ^{*Information on a person's credit report that can be legally used to turn down a loan application; it includes late payments, collections, charge-offs, and bankruptcies.}