Three little numbers can hold a lot of power when it comes to your finances.
Local financial professional Jeff Bangerter, a state registered investment advisor, from Bangerter Financial Services is talking to Eric about the ins and outs of our credit scores.
What makes up a credit score?
There are four major factors:
- Payment history -- whether you pay your bills in full and on time.
- Outstanding debt -- the more maxed out credit cards you have, the lower your score.
- Length of time you have been building credit -- the longer your credit history, the better.
- Number of inquiries on your credit report -- a higher number of credit report inquiries may indicate you are struggling financially or may have a lot of debt.
How can we check our credit score and what should we look for?
- You should be checking your credit score every year. You can get a free credit report from each of the three major bureaus annually.
- You also want to make sure the information on your credit report is up-to-date and accurate, and that there aren’t any mistakes.
Some of the most common errors are:
- Unauthorized purchases, amounts that are different from what you actually paid, incorrect dates for purchases, incorrect items, missing payments that were made and accounts that weren’t authorized by the consumer.
- Even your Social Security number and personal information can be wrong, which could make you responsible for someone else’s debt.
True or false? You can boost your credit score.
True. The best ways to boost your credit score are:
- Pay Off Debt
- Pay your bills on time and make your monthly payments in full. This will always be a positive on your credit report.
- If you have credit card debt, Bangerter recommends using the “snowball effect” to pay it off. Start with your lowest balance and work to pay that off in full, while still making the minimum payment on your other cards. Then move to the card with the next lowest balance. Paying these off one by one will help build momentum and encourage you to keep saving to pay off debt.
- Keep Balances Low -- It’s important to keep your balances low in relation to the credit you have available. This has always been a positive thing in scoring formulas, and that likely won’t change with trending data looking at balance trends over time.
- Open New Accounts When Needed -- Don’t open a new credit card or apply for a loan if it isn’t necessary.
True or false? - You can never get a perfect credit score.
- False. -- A perfect credit score is not an easy accomplishment, but it is possible! Less than 1% of the population has a perfect 850 credit score. One of the benefits of a high credit score is qualifying for lower interest rates on loans, which will save you money.
- If a perfect score seems unattainable, set a goal to get your credit score in the “excellent” range, which is 750 - 850.
Ways to Boost Your Credit Score
- Pay Off Debt
- Keep Balances Low
- Open New Accounts Only When Needed