Do you Know Your Credit Score and What it Means? by Jason Blakey, Business Development Manager

It’s true, we can get a little obsessed with our credit score. As it turns out we may not know as much about our scores as we should. Here’s a guide to some truths surrounding credit scores and what it means.

Where Does a Credit Score Come From?

The Big Three. There are three main credit bureaus (Equifax, TransUnion, and Experian) each with credit scores based on the data in their credit reports. FICO uses the data from the bureaus to generate your FICO score. You may have another credit score known as a VantageScore. VantageScore was developed by the three bureaus as an alternative to FICO and is used by many lenders and financial institutions as part of their lending process.

Many large credit card issuers have developed their own customized scoring models with a combination of scores and criteria. It’s important to understand that the score you get from a credit card company, or a credit monitoring tool may vary slightly.

Tip: The best thing to do is get a free credit score to gain an understanding of how a lender might interpret your creditworthiness.

Your Score WiIl Impact Your Loan Rate

Credit reports and score data help lenders assess risk. The higher the score, the lower the risk or likelihood of delinquent payments. The lower the score, the higher the likelihood of potential delinquency. This is used to set the terms of an account, such as the interest rate.

Carrying a Balance Does Not Help Your Score

More than 1 in 5 credit card users, or 43 million Americans, carry a balance – or pay just the minimum payment, thinking it’ll help improve their credit score. Carrying a balance isn’t one of the factors that goes into creating a credit score. Lenders that check your credit report can see the utilization reported by your credit card issuer — and whether you pay your bills on time. But they don’t know whether you carry a balance month-to-month or whether you pay it in full.

Instead of carrying a balance do the following:

Focus on credit utilization.

Lower your credit card balances.

Missed or late payments and defaults take a while to recover from, but lowering balances can impact your score relatively quickly.

Your Score Impacts Other Areas of Financial Life

Most people know that mortgage lenders and credit card companies use their scores to assess creditworthiness. But you may not realize that some landlords, utility, and even cellphone companies may use your scores to determine your monthly fee, activation charges or whether or not to do business with you at all.

A Bad Score is Not a Reason to Panic

It’s not the end of the world if your score is low. With some work, your score can improve over time. And if you need a loan now, you can compensate for having a low score by increasing your down payment on your monthly loans like a car payment or mortgage.

Boosting Your Credit Doesn’t Take Forever

If you’re actively working to improve your score, it won’t take that long. By applying the following good credit principles, you should see improvement relatively quickly (6-12 months):

Consistently pay on time.

Lower your credit utilization, below 30% if possible.

Apply for new credit sparingly.

Do not close old paid-off credit accounts.

Review your credit report regularly for accuracy.

Dispute credit report inaccuracies immediately.

If you keep it up, over an 18 – 24 month period, you should be even closer to your credit score goals.

Credit Union of Georgia offers a free Credit Score tool within Digital Banking. Members have instant access to their credit score, credit report, personalized money-saving offers, and financial education tips on how to improve their score or maintain an already great score.

Learn more today at www.CUofGA.org.

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