Credit scores are determined by agencies called credit bureaus and are based on your accounts that you have opened, and how and when you repay debt. When you apply for credit, lenders check your credit score, credit report, credit history, and other things to decide if they’ll approve your application, then how much they can offer you and what interest rate. interest you will pay. For this reason, credit scores are important to your overall financial health.
“Knowing how credit works and why your score matters can help you make safer decisions about your money. Sometimes people only learn the importance of their score when a credit application is rejected. It’s important to start building your credit before you need to use it,” says Detroit Community Manager Stacie Hunter.
Here are 5 key tips to help you get the most out of your score and build it over time:
Learn your number. Knowing your credit score is the first step. There are many free credit check tools available that work by doing a “gentle pull” that won’t affect your score. An example is Credit Journey by Chase. You can also request your free credit report from the three credit bureaus once a year. The Federal Trade Commission – a government agency that supports consumer rights – offers more information at https://consumer.ftc.gov. You can also visit www.annualcreditreport.com.
Know how your score is calculated. There are six key areas that make up a credit score:
- your payment history
- how much you owe on your debts or balances
- new accounts or credit opened
- credit checks
- credit available
- and your credit history or how long you’ve had an account open.
These factors determine your score and influence any changes, but the most important thing is making payments on time, which accounts for around 40% of the score.
Build your credit. Scores can range from 300 to 850. According to the credit bureaus, a score of around 700 is considered “good.” To build your score, pay your bills on time and consider setting up automatic payments. If possible, pay off all the debt you can and only apply for the accounts you need.
Prepare for big purchases. If you’re about to make a major purchase and are considering applying for new credit, such as a home or car loan, review your credit report and score to help you apply with confidence. Credit scores and credit history help lenders determine how much credit they will offer and at what interest rate. Sometimes scores can also be affected by inaccuracies on your report, so checking ahead will help you identify and resolve potential issues before a lender does a credit check.
Only apply for credit when you need it. When you apply for new credit, lenders perform a “hard pull” or access to your full report, which may cause your score to drop. However, if you use credit monitoring tools, this results in a “soft” extraction of information and does not impact your score.
Branches of the Chase Community Center hold workshops on credit health, as well as how to budget and save. You can learn more by visiting the Chase Community Center at 15633 W. Seven Mile Road in Detroit.
To access free information, tools and resources to help support your financial health, visit www.chase.com/financialgoals.
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