Credit Scores and What They Mean
What is a Credit Score?
Your credit score is a three digit number generated using information from your credit report and are used by lenders to decide if they’ll approve you for a credit card or loan since it is an indicator of how likely you are to repay debt.
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The Importance of a Credit Score
Credit scores generally range from 300 to 850 and may vary. Typically, anything above 670 is considered “good”. Because scores are used as an indicator of creditworthiness, if you get a variable-rate loan the higher the score is the better your rate will be. Likewise, a lower score will cause you to have a higher interest rate. Credit scores aren’t just used for loans but can also play a role in renting an apartment, lowering your insurance rate, or even determining if you’re eligible for financing when making large-dollar purchases.
Pro tip: FICO is a credit score model used by most top lenders. If you are enrolled in online banking with Redstone, your FICO score is available for free. You can check it an unlimited number of times without it impacting your score.
How Your Score is Calculated
On-Time Payments
Your debt payment history is the most important credit score factor. It includes on-time, late and missed payments. Aim to make payments on-time, even if it's just the minimum.
Pay Down Balances
How much you owe and the percentage of available credit you're using on revolving accounts such as credit cards is a big factor. Make paying off your high balances a priority.
Credit Age
The length of your credit history is heavily influenced by the average age of all your accounts. Consider keeping them open even if you don't use them regularly.
Vary Types of Credit
Managing different types of credit, such as two credit cards, an auto loan and a mortgage loan creates a stronger credit mix than someone with just one credit card.
Limit Applying
Almost every time you apply for credit, the lender will run an inquiry on one or more of your credit reports. Multiple inquiries in a short period of time could have a negative effect.
Alternative Ways to Build or Rebuild Credit
The more you practice good credit habits, the more your credit history will improve. Utilize loans such as Secured Loan products to help build or rebuild your credit by using your own savings as collateral. This keeps your savings intact and can even make approvals easier.
Another option is to become an authorized user on someone's credit card account that has good credit and manages it well. Once added, the card issuer will typically report the full history of the account to the credit bureaus within a few months. It’s important to note that you don’t even have to use, or even possess, the credit card to benefit from this.
Just remember, even something as simple as paying down your everyday bills on time can help build up your credit. Explore products like Experian Boost® that can help you manage them.
Your Credit Report
There are three big nationwide providers of consumer credit reports: Equifax, TransUnion, and Experian. Their reports have a detailed record of your credit history, current financial situation, and even include personal details like employment and residential history. Lenders use your credit report to help them decide if they will loan you money and what interest rate they will offer. Other business might use your credit reports to:
Basic Services
This includes cable TV, internet, utilities, or cell phone services.
Home and Living
Whether you are able to rent a property or be offered insurance.
Employment
Set up automatic transfers on each paycheck to build your emergency fund over time.
Your credit score comes from the information on your credit report. It’s important to note that your score can vary slightly from each of the credit reporting bureaus based on their scoring model, reported data, or when updates are made, among other reasons. There is no “best” credit bureau—all three can offer helpful information and tools to help you make financial decisions.
It is important to review your credit report at least once a year for any errors and to spot potential identity theft. Inaccurate information could have a significant negative impact on your credit score. If you're a victim of identity theft, you may have multiple derogatory marks on your credit reports in the form of fraudulent accounts. Request your free credit report and review it for any information you don't recognize.
Additional Resources
Redstone Traditional Credit Card
Whether you’re opening your first credit card or working to build (or rebuild) your credit, the Visa Traditional credit card is here for you.
Credit Builder Loan
Credit building loan options that give you a safe, supportive way to move forward at your own pace.
All About Loans
Consider the way borrowing may impact your finances and get advice on the pros and cons.