A credit score is a three-digit number representing your creditworthiness as a borrower to lenders and how likely you will repay a loan. Though a small number, it has a major impact on finances, including how much you're approved for borrowing and what interest rate you'll pay.
You can think of your score as a summary of your credit report. It provides a snapshot to lenders on how long you've had credit, how often you make on-time payments, and how much credit you have available. The score calculation depends on several factors — and you have the power to influence it.
How are Credit Scores Calculated
The typical credit score includes these five factors:
- Payment history (35%): Making on-time payments for credit accounts is the most important factor
- Amounts owed (30%): How much of your available credit you're using, also known as credit utilization
- Length of credit history (15%): How long your credit accounts have been open
- New credit (10%): The number of new credit account applications in a defined period of time
- Credit mix (10%): Your mix of credit accounts, including loans, credit cards, and/or retail accounts
Steps for Improving Your Credit Score Over Time
Improving your credit score will not happen overnight, but you may be surprised at how simple, consistent actions can raise your score over time. These steps include:
- Paying bills on time every month and setting reminders if needed. Not only does this help your score, but it also helps you to avoid late fees and penalties.
- Reducing credit utilization by keeping balances as low as possible or paying them in full each month.
- Avoid opening too many new accounts at once.
- Regularly checking your credit report for errors and disputing inaccuracies as soon as they pop up. You can check your credit report for free at annualcreditreport.com
- Keeping older accounts open to help with your credit history length.
Peoples Bank of Kewanee offers a full lineup of checking, savings, and lending options, as well as modern and convenient digital banking services to help manage your finances. Contact us today.
