Understanding Credit Scores and Tips for Boosting Credit Health

A credit score is a crucial part of your financial health and is used to determine your creditworthiness. Whether you are building your score from scratch or rebuilding after a financial setback, it's important to learn how the number is calculated and steps you can take to improve it.

Your credit score is based on information from your credit report, which includes details about how you have managed debt, your payment history, and the length of your credit history. This information is compiled by the three major credit bureaus (Equifax, Experian, and TransUnion), and a mathematical formula referred to as a scoring model is used to calculate your credit score. There are different scoring models, which means that it's possible for a person to have a different credit score with each of the three credit bureaus.

Your score influences many aspects of your financial life. Lenders, landlords, and even utility companies use your credit score to determine how qualified you are to apply for a mortgage or car loan, rent an apartment, and pay your bills on time. A higher score can help you be approved for credit and receive better terms, such as lower interest rates and higher credit limits.

Though credit score ranges vary based on the scoring model used, credit scores are generally considered "good" in the mid-to-high 600's. If you are looking to boost your score, here are some general tips that can help:

1. Avoid missing payments. Your payment history is one of the most important factors in determining your score, and being late on a payment can cause your score to decrease significantly. Set up automatic payments or reminders each month for every bill and debt payment you owe to ensure you pay on time.
2. Keep your card balances low. The amount of available credit you are using is called your credit utilization ratio, and it's best to keep this below 30%. Try to keep your credit card balances well below their limits, as using a large percentage of your available credit can negatively impact your score.
3. Monitor your credit report. Regularly review your credit report to check for errors or signs of identity theft. You can access your credit reports once a week for free through Equifax, Experian, and TransUnion.
4. Limit new credit applications. Each time you apply for a loan, it can result in a hard inquiry on your credit report, which may temporarily lower your score. Avoid opening multiple accounts within a short period of time, and if you are comparing loan options to find the lowest interest rate, do so in a short period of time. Depending on the scoring model, multiple credit inquiries are counted as one if they are contained within a specific timeframe – some models use a 14-day window while others use a 45-day window. For example, multiple auto loan inquiries within a certain period of time indicate to lenders that you are shopping around for the best terms.
5. Diversify your credit mix. Having a combination of different credit types, such as personal loans and credit cards, can positively impact your score. However, be sure to only take on new credit if you can manage it responsibly.

At South Carolina Federal, we offer complimentary financial check-ups for our members. Visit one of our financial centers to speak with a representative who can help you create a personalized plan to improve your credit health. We also offer complimentary access to a free financial wellness platform for our members, where you can find helpful information on saving, budgeting, and paying down debt.

Your credit score is a vital part of your financial wellness. By understanding how it is calculated and how you can maintain a high score, you will be one step closer to achieving your financial goals.