If you have used a credit card or bought something on credit, then chances are that you have a credit score. Hopefully this isn’t your first time hearing about it! Credit scores are designed to represent your ability to manage credit and pay your bills on time.
Your credit score is calculated using the information provided on your credit reports. This information includes your payment history, the amount of debt you have, and the length of your credit history. Your creditors automatically report this information to reflect on your credit score. Scores range from 300 to 850, and higher scores mean that you have demonstrated an ability to manage and payback your credit, while lower scores indicate that you haven’t. People with higher credit scores tend to receive better credit terms, such as lower payments and less interest over time.
Equifax, Experian, and TransUnion are the three major credit card bureaus, and they each have a slightly different way of processing your credit score. The primary reason for this is because not all creditors report to all three of the bureaus. Some report to two, and some don’t report anything at all. It is a good idea to check your credit score with all three bureaus, Credit Karma is a great resource for keeping track of all three bureaus and receiving updates on any changes in your credit score.
Creditors and lenders use the information on your credit report in different ways. For example, if you’re buying a car, the focus will likely be on your payment history. On the other hand, credit card companies and personal loan lenders may look at the number of open accounts you have instead.
The best way to keep your credit score in good standing is to pay all your creditors and/or debt program payments on time, be discerning about new accounts you open, and try not to carry a balance over 30% of your available credit. If you run a high balance one month, try to pay off enough to maintain a month to month balance of no more than 30% your total credit limit.
Remember, missing payments or making minimum payments may seem like a good short term idea for preserving the amount of money in your bank account, but in the long run, it is very costly for your credit score! Consider taking advantage of our offer for a free debt analysis to learn about additional ways to maintain your credit score when you’re managing a debt balance.