Improve Your Credit Score

Whether you have actively thought about it or not, you have built a credit history and a credit score that is reviewed constantly by lenders, credit card companies, financial institutions and even employers. Your credit score not only affects the rate you will be charged for credit, but also affects the financial products and services you will be able to obtain. A poor credit score can mean that you may be turned down for even a basic account such as checking.

Understanding how this score affects your financial life is critical, but it doesn't take much time to learn the basics and even start correcting a bad score

Credit scores are calculated using a mathematical formula that evaluates the information in consumers' credit reports. The formula statistically compares your information to the past patterns of millions of other consumer credit files. Your score is a number that reflects your credit risk to lenders. A higher number or score indicates lower risk; a lower number or score indicates a higher risk.

When you apply for credit, lenders (including those "apply here" retail card offers) use credit scores to quickly summarize your credit history, and to help them determine how likely you are to repay on time and according to terms. Your score is based on information in your credit report including:

1. Your payment history
2. How much money you currently owe
3. How long your accounts have been open
4. What type of credit you use
5. How much credit you used compared to the amount of credit you have available
6. How often and how recently you've applied for credit

There are many different credit scores used in the financial services industry, so your score may be different from lender to lender. Also, lenders use these scores differently, so your credit application might be approved by one lender but rejected by another based on the same credit report information.

Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing a good track record of making payments on time will raise your score.

Score factors are key to improving credit scores. They tell you what you must address in your credit history to become more creditworthy over time.

What immediate steps should you take to improve your credit score?

Make payments on time. Take advantage of phone or electronic bill payment capabilities. If you don't like the idea of automatic payments, you can still schedule payments in advance using SCCU's Bill Payer service. That way, you can control the amount and date of each payment.

Close credit lines you don't use or request lower lines. It's best to keep older accounts open and close new accounts you don't need.

Don't jump from one credit card to another. Among other factors, lenders consider how long you maintain your lines of credit. Carry a few cards that provide the benefits you seek. Only take a new card if it offers a truly unique benefit that works for you.

Related Links:
How Lenders Evaluate Your Loan Application

The information on this page is for educational purposes only. SCCU is not engaged in providing estate planning or other advice. Please consult with a competent estate planning professional regarding any specific estate planning questions.