Credit scores: Why it should matter to you, and how to improve one.
If you’ve ever applied for a loan, credit card, or even rented an apartment, you’ve probably heard the term “credit score” tossed around. But what exactly is it, and why does it matter so much? Let's break it down into simple terms and help you figure out how to check your own credit report.
What’s a credit score?
Think of your credit score as a snapshot of how well you’ve managed your financial obligations over time. It’s a three-digit number, usually ranging between 300 and 850, that tells lenders, landlords, and even some employers how responsible you are with credit. A higher number means you’re seen as less risky, and lower scores can raise eyebrows, signaling that you might struggle to pay back loans or keep up with bills.
Credit scores are determined by a few key factors:
- Payment history: Do you pay your bills on time? Late payments can really hurt your score.
- Amounts owed: How much debt do you carry? Using too much of your available credit (such as maxing out credit cards) can make lenders nervous.
- Length of credit history: The longer you’ve been using credit responsibly, the better.
- New credit: Opening lots of new credit accounts in a short time can lower your score.
- Credit mix: A diverse range of credit (such as a mortgage, car loan or a credit card) can help improve your score when managed correctly.
In general, scores above 700 are considered good, and anything above 800 is excellent. On the flip side, if your score falls below 600, you might find it harder to get approved for loans, or you could end up paying higher interest rates when you do get approved.
“There are a lot of factors that can impact your credit score,” says Bill Gandolfo, manger of product management — consumer lending with Commerce Bank. “But payment history is the most important. Late payments can quickly drop your score, while consistently paying on time will help to increase it.”
Why your credit score matters
So, why should you care so much about a number?
“A credit score helps lending institutions determine how much you can borrow and can impact the interest rate that you will receive. There can be large variances between an interest rate for someone with a high credit score versus a low credit score,” according to Gandolfo.
Your credit score affects a lot more than just loans or credit cards. A good score can help you:
- Get approved for loans or credit cards more easily
- Qualify for lower interest rates, which means you’ll pay less over time
- Rent an apartment or even land a job (that’s right — some employers check your credit)
On the other hand, a poor score can mean higher interest rates, costing you more in the long run. It can also result in getting denied for loans, credit cards or even rental applications.
How to find your credit report
Your credit score is based on your credit report, which is essentially a detailed history of your borrowing behavior. This report is compiled by three main credit bureaus: Equifax opens in a new window, Experian opens in a new window, and TransUnion opens in a new window.
Your credit report is an important part of your financial life. It can determine whether you can get credit, how good or bad the terms for getting credit are and how much it costs you to borrow money.
The good news? You can access your score for free with Commerce Bank through Online Banking and the Commerce Bank Mobile App, or on your monthly credit card statement. You’re also entitled to a free credit report opens in a new window from each of these agencies once a year. During the pandemic, the rules were relaxed to allow weekly access; so depending on current policies, you might still have more frequent access.
A great strategy is to space out your requests — check one bureau’s report every four months. That way, you get regular updates on your credit without having to wait a whole year for the next free report.
How to check your credit score
While credit reports are free, your credit score usually isn’t included in those. But don’t worry, there are still ways to check opens in a new window your score without paying a dime:
- Credit card companies and banks: Some credit card issuers now offer free credit scores to their customers as part of their account services.
- Credit reporting agencies: Some bureaus will give you access to your credit score when you sign up for credit monitoring services.
- Free credit score websites: A number of online services will provide your score for free, though it’s important to use reputable sites and avoid scams.
Remember, your score might vary slightly between the different credit bureaus, but it’s all based on the same underlying factors.
Tips for improving your credit score
Even if your credit score isn’t where you want it to be right now, the good news is you can always improve it. Here are a few simple ways to start boosting your score:
- Pay your bills in a timely manner: This is one of the biggest factors in determining your credit score. Setting up automatic payments or reminders can help ensure you never miss a due date.
- Keep your credit card balances low: Aim to use no more than 30% of your available credit. If you can, try paying off your balances in full each month.
- Limit new credit applications: Each time you apply for credit, it triggers a “hard inquiry opens in a new window,” which can lower your score temporarily.
- Check your credit report for errors: Mistakes happen, and they can drag your score down. If you spot any errors, such as a loan you never took out or a payment marked late when you paid on time, be sure to dispute them.
Take control of your financial future with Commerce
“Don’t wait to find out that your credit score is low when you are applying for a loan,” says Gandolfo. “Regularly check your credit report and work to resolve any issues that may be bringing your score down.”
Your credit score is one of the most important numbers in your financial life, influencing everything from your ability to buy a car or home to the interest rates you pay on loans. Regularly checking your credit report, understanding the factors that affect your score, and taking steps to improve it can help you stay in control of your financial future. Your Commerce Banker can help you determine where your credit score stands — and how you can improve it if needed. It’s free, it’s easy, and it’s a smart way to protect your financial health.
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