Credit: What's Your Number?
Are you dreaming of purchasing a new home? Maybe you have your sights set on a new vehicle. The first step in preparing to finance major purchases is to know your credit score.
What is a credit score? A credit score is a number lenders often use when extending a loan. It enables them to better determine the rates, terms and risk for loans. Credit Scores range from 300 – 850, therefore the higher your credit score, the less risk you present and the more likely you are to obtain credit.
The following factors contribute to a consumer’s credit score:
- Credit Utilization – How much of your available credit are you using? If you have a $3,000 limit on your credit card and you balance is $1,500, then you are utilizing 50% of your available credit. The lower the utilization, the better your score.
- Payment History – Do you pay your bills on time? Even one late payment on your credit history can have a profound impact on your credit score.
- New Credit – Opening too many new accounts within a short period of time can make you appear to be irresponsible, therefore flagging you as higher risk.
- Length of Credit – The average age of your credit will impact your credit score. Simply stated, the longer you have credit, the more positive the impact on your score.
- Types of credit – The types of loans you have can also show a lender how credible you are. The more diversified your accounts are, the better your score.
Your score determines your ability to qualify for loans and to get better interest rates when borrowing. If you know your credit score, then you have a better understanding of your credit position.
For more information about credit scores, click here: https://www.aba.com/advocacy/community-programs/consumer-resources/manage-your-money/understanding-your-credit-score