our credit score is a three-digit number that can have a big impact on your financial life. It’s a metric that provides lenders with a snapshot of your creditworthiness. Whether you’re applying for a mortgage, car loan, credit card or any other form of credit, a poor credit score may suggest that you’re a risky borrower. As a result, you could get stuck paying higher interest rates — or worse, be outright declined for new credit.
Fortunately, your credit score isn’t set in stone. Life happens, and there are many reasons why your credit may have taken a hit. What matters most is being intentional about turning things around. The average FICO Score, which is generated by a leading credit scoring model, comes in at 711. That’s considered a good score, but if you’re not quite there yet, don’t worry. Read on for four simple ways to improve your credit score.
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How to check your credit
To effectively boost your credit score, you’ll first need to understand what’s weighing it down. Your credit reports are a great resource that should bring things into focus pretty quickly. There are three major consumer credit bureaus (Experian, Equifax and TransUnion). Credit activity is generally reported to all three. This includes your payment history and account balances, along with delinquent accounts. When you pay your creditors, they report it to the bureaus — and each agency maintains its own credit report for you. You can check all three at no charge by visiting AnnualCreditReport.com.
Your credit score is determined by the information on your credit reports. You can check your FICO Score a few different ways. Experian offers it for free. Many credit card companies, like Discover and American Express, also provide it as a free perk for account holders.
FICO Scores are broken down this way:
- Poor: 300-579
- Fair: 580-669
- Good: 670-739
- Very good: 740-799
- Exceptional: 800-850
Factors that affect your credit score
When it comes to determining your credit score, there are a lot of moving parts at play. Some factors carry more weight than others, but it basically comes down to maintaining healthy financial habits and demonstrating that you know how to use credit responsibly. Here’s how FICO calculates your score:
- 35% Payment history: Do you pay your bills on time?
- 30% Amounts owed: Are you using a lot of your available credit limit?
- 15% Length of credit history: Do you have a thin credit file because you’re just beginning to establish credit?
- 10% Credit mix: Do your open accounts reflect a mix of different types of debts? Examples include credit cards, student loans, a mortgage, a car loan, etc.
- 10% New credit: New credit inquiries affect your score and stay on your credit report for two years.
How to improve your credit score
Improving your credit may take time, but adopting these healthy financial habits can help you get there. DailyPay is here to provide on-demand pay when you need it most