Understanding your credit score and accessing your report
What is a credit score?
Credit Reporting Agencies use a credit score model to calculate your credit score from information in your credit report. Credit score models such as FICO and VantageScore pull information directly from your credit report to calculate your credit score. Because each of the three credit reporting agencies may have slightly different information in your credit report, you may see multiple credit scores.
Your credit score estimates your credit behavior, including how likely you are to repay a loan on time.
What data goes into a credit score?
Credit score models and calculations typically look at factors such as:
- On time and late payments
- Outstanding account balances and total available credit
- The total number and types of accounts
- The age of your accounts and new applications for credit
- If you have been involved in collection efforts, foreclosure or bankruptcy
Your credit score can impact many areas of your life. It may affect your loan options, interest rates and credit limits. It can impact housing opportunities, job prospects if the role has financial responsibilities and your negotiating power with other companies, which is why understanding your credit score is important.
How do I build my credit?
- Make timely payments
It may sound obvious, but making your payments on time is an important step toward building your credit.
When you miss a payment, you’re sending a message to lenders that you may be an unreliable borrower. Your payment history is a strong indicator of the type of borrower you will be, and what your credit behavior is.
You should only make charges on your credit card if you’re certain you can pay them back. Be aware of your payment deadlines and pay them on time.
With First Tech’s Digital Banking, you can view your bills online, make payments and automate future payments, reducing the chance of missing a payment, all in one place.
Keeping your credit card balances low relative to your credit limits (often below 30%) can help support a stronger credit profile.
- Limit requests for new credit
When you apply for credit, lenders typically perform a credit check that results in a hard inquiry on your credit report. This inquiry will stay on your report for two years and may impact your credit score. Applying for several new accounts in a short period of time can signal increased risk to lenders, so it’s generally best to be thoughtful about when and why you apply for new credit. If you’re considering opening a new account or requesting a higher credit limit, take time to evaluate how it fits into your overall financial goals. In some cases, increasing your available credit without increasing your spending can help lower your credit utilization, which may support your credit profile. It’s also worth noting that creditors may increase your credit limit automatically over time. If that happens, you can choose to keep the increase or adjust your limit based on what feels most manageable for you.
- Monitor your report
It’s important to review your credit reports. Each year, you can request a copy of your credit report from each of the three major credit reporting agencies for free at annualcreditreport.com.
In addition, the three bureaus have permanently extended a program that lets you check your credit report from each once a week for free at annualcreditreport.com. Learn more here.
NOTE: Official Authorized Site: AnnualCreditReport.com is the only centralized, government-mandated platform for free reports. Beware of look-alike sites attempting to charge you or steal personal data.
If you discover an inaccuracy in your credit report, you’ll want to be sure to submit a dispute to be investigated and submit a dispute so it can be investigated and corrected if necessary. To do this, you’ll need to contact the credit reporting agencies as well as the business that reported the inaccurate information. They will investigate and keep you informed of what they find.
- Understand loan types
Lastly, you should be aware that there are different types of loans, which work in different ways and may provide you with different benefits.
Credit cards are a form of revolving credit. Revolving credit allows you to borrow money as you need it and pay it back on a monthly cycle, or in larger amounts as you are able. As you pay it back, the unused portion of your credit line is available again for you to borrow against. While this type of credit is convenient and flexible, you’re also obligated to pay back the borrowed money, plus interest. Because minimum payments for revolving loans are calculated every month based on the outstanding balance and interest accrual, these types of loans can take longer to pay off than other types of credit.
Installment loans such as automobiles, mortgage and personal loans provide borrowers with a fixed sum of money upfront and require them to pay it back in fixed scheduled payment amounts until the loan is paid in full.
Revolving credit interest rates are typically higher than installment loans due to the flexibility they offer, which lenders typically consider more of a risk. Because of this, options like consolidating your credit card debt to a lower-rate, fixed-term installment loan may save you a considerable amount of money and help you pay your loans back faster.
Managing credit on your own can be tricky, but First Tech can help. If you have questions about credit, schedule a virtual or in-person appointment to speak with one of our financial professionals.