Your Credit Score Explained

You know that a good credit score is essential for living a healthy financial life, but what is a credit score, and how can you build it? Here’s your credit score explained in five bullet points.

Your credit score is a three-digit number that is calculated using your credit report. It examines your history with paying your financial obligations and helps lenders determine if you’re a good financial risk. This means it impacts whether or not you’ll be eligible for a loan and your interest rate on that loan.

A credit score is made up of five components:

  1. Payment History (record of paying bills on time) makes up 35% of your score. You can improve this part of your credit score by paying your bills on time and using resources such as Bill Pay to set automatic payments to keep you on track.
  2. Amount Owed makes up 30% of your credit score. FICO considers your credit utilization ratio, which means how much debt you have compared to the amount of available credit you have. Owing money and paying it back shows a lender that you’re responsible with your finances, and can help build your credit score. With that being said, it’s more impressive to lenders if your balance is $400 on a credit card with a $5,000 limit than if your balance is $4,500 on that same credit card.
  3. Length of Credit History is 15% of your credit score. Having a long line of credit can boost your score, and you’ll get there if you’re new to maintaining credit as long as you keep your balances low and paid on time. If you have an old credit card that you no longer want to use and it doesn’t have an annual fee, keep it open regardless, as it can still improve your score.
  4. New Credit makes up 10% of your credit score. When looking into opening a new credit card or loan, the lender pulls your FICO score, which is called an inquiry. If you’re applying for several credit cards or loans within weeks of one another, they get several inquiries, which can be interpreted by FICO as you needing money quickly, and can make you appear more of a financial risk.
  5. A Mix of Credit makes up 10% of your credit score. A variety of credit is considered when calculating your credit score. Do you have credit cards, store accounts, auto loans, installment loans, mortgages? This is only a minor portion of your credit score, so don’t stress if you don’t have each type of credit.

To learn more or have your credit score explained in further detail, schedule an appointment at one of our local branches and one of our Member Experience Specialists will happily assist you.