Did you know that your credit score will have a direct impact on the most significant purchases you make? It will have an effect on the payment amount for a new auto or home loan.
Most financial institutions in the United States use FICO scores as a basis for providing loans to consumers. A FICO score comprises various personal economic statistics and can range from 300 (lowest) to 850 (highest). This number is directly related to loan qualification and interest rate, meaning the higher the score, the lower your rates, and the more credit you may be able to qualify for in the future.
Here’s how this score is broken down:
- 35% of the Score = Payment History: How have you repaid your debt in the past? Generally, anything negative will drive down your score, and anything positive will drive up your score. Your past lending behavior is used to determine your future lending behavior.
- 30% of the Score = Credit Utilization: This part of the score focuses on how much available credit you have. Do you max out your credit cards? Are you always close to your credit limits? The best credit scores typically have anywhere from seven to 20 percent of their overall debt used.
- 15% of the Score = Length of History: It is impossible for a person who is new to credit to have a perfect score. Unfortunately, it doesn’t work that way. You have to prove over time that you can manage credit responsibly.
- 10% of the Score = New Credit: How many credit inquiries or new lines of credit (including credit cards) do you have? More is not better in this instance. Be sure to limit any new credit you request to only that which you genuinely need. Having a credit card “just in case” will not usually help your score. You need to use the credit you have but use it wisely.
- 10% of the Score = Credit Mix: What type of loans do you have? A credit card? An auto loan? A home loan? In most instances, lenders find that borrowers with the right mix of credit may be less risk.
What is your FICO score?
By law, you have the right to get a free copy of your credit report every year. To obtain your free report, visit www.annualcreditreport.com. If you have any questions about your credit score or believe something may not be quite right on your credit report, give us a call at 406.651.AFCU.
To learn more about a credit card with low rates, generous terms, and a credit limit that’s right for you, visit our website at altanafcu.org/cards/credit-cards/.