Why your credit score matters and how to build credit.
Key takeaways:
- Your credit score is a key sign of your financial health: It influences loan approval, interest rates and even renting.
- Factors affecting your score include payment history, credit usage, length of credit history and types of accounts.
- Building good credit requires responsible spending, timely payments, regular credit checks and quickly fixing any issues.
Your credit score opens in a new window is a crucial part of your financial life, yet you may be wondering exactly what it means or why it matters. It’s a number that helps lenders understand how reliably you repay borrowed money. Scores are calculated based on several factors, including your payment history, the amount of credit you use compared to your limits (credit utilization), the length of your credit history, and the kinds of credit accounts you have. There are different types of credit scores, with FICO and Vantage Score opens in a new window being the most common.
Why your credit score matters.
Having a strong credit score may open doors to better loan options, lower interest rates, and even reduced insurance premiums. Landlords opens in a new window and employers opens in a new window may also check your credit, using it as part of their decision-making process. A good credit score may make it easier to rent an apartment or even buy a car.
How credit scores are calculated.
Understanding how credit scores are calculated is a big step toward building your credit. Payment history is the most significant component — paying your bills on time shows lenders you’re reliable. Keeping your credit utilization low – i.e., ideally no more than 30% opens in a new window of your available credit -- also helps, as does having a long track record with different types of credit accounts, like credit cards and installment loans.
How to build your credit score.
Building your credit score doesn’t have to be intimidating. Start by using credit cards responsibly, paying off balances each month if possible. Consider small loans or secured credit cards if you’re just getting started; becoming an authorized user on someone else’s account can also help. These steps show lenders you’re capable of managing credit wisely.
Finally, monitoring your credit score is essential. You can check your credit score for free in Commerce Bank’s online banking and the Commerce Mobile App or on your monthly credit card statement. You can also obtain an annual free credit report from major credit bureaus — Experian opens in a new window, TransUnion opens in a new window and Equifax opens in a new window — and credit monitoring services can alert you to changes or errors. Checking your report regularly ensures your information is accurate and helps you spot potential fraud early.
Remember, building credit is a journey, not a sprint. With patience and good habits, you’ll see your score improve, creating more opportunities for yourself. Now that you understand what your credit score means for your financial future, Commerce Bank can help you maintain control of it.
