How to cultivate a good credit score

May 15, 2015 | Liz Schrock

Stack of quarters and a credit score rating.

Your credit score is not the only element of your overall financial picture, but it’s one of the most important. What goes into a credit score? And what are some ways to create and maintain a desirable credit rating? Before we get into the details, a brief background and a little history will help.

Twenty-five years ago, FICO (Fair, Isaac & Co.) introduced the first credit score rating. The present-day rating ranges between 300 (poor) and 850 (excellent). The score is used by lenders, banks and other financial institutions to quickly determine the “creditworthiness” of a person. The higher your credit score is, the lower your credit risk. Someone with a credit rating of 810 typically enjoys ready access to mortgages, auto loans and other lines of credit. With a score of 470, it’s extremely challenging to obtain credit according to Investopedia. Experts generally agree that the significant separation point between “bad” and “good” credit is the 650-700 range.

Very few people obtain an 850 score. About 40% of people have a score somewhere between 750 and 850. There are five major factors that go into your credit score: payment history (35%), debt profile (30%), length of credit history (15%), variety of credit utilized (10%) and finally, number of credit inquiries (10%).

Here are five things you can do to increase your credit score:

  1. Always pay your bills on time. For major loans (mortgages, cars), any payment received more than 30 days past the due date will negatively impact your score. Remember, this is a big part of your payment history, which accounts for over a third of your overall score.
  2. Limit your credit applications. Ideally, credit cards should be used in case of emergencies. If you’re constantly applying for new lines of credit, these “hits” decrease your credit score. Endless applications indicate to lenders that you’re desperate for credit—a sure sign of a shaky financial foundation.
  3. Maintain older lines of credit. The longer your credit history (especially a history with on-time payments), the better your score will be. So before you cancel that old credit card, consider the alternative. If your card has a higher interest rate or yearly fees, talk with a card representative and ask for a better deal.
  4. Beware of “credit creep.” If your total available credit is $10,000, don’t carry a $9,000 balance. As a general rule of thumb, you want to leave 75% of your credit line unused. Similar to #2 above, having a high balance tells would-be credit lenders that you’re not very responsible.
  5. Be proactive—check your score regularly. Some credit cards now include a free credit score package. You can also sign up for pay-as-you-go services like Free Credit Score. If yearly checkups are enough, you’re entitled to a free credit report, as per federal law.

If your credit score is important to financial health, so is having an advocate on your behalf. Mission Fed has a full suite of financial services, including San Diego Auto Loans and Mortgage Loans, eServices, Savings Accounts and Credit Cards.

I hope this information on cultivating a good credit score has been helpful. If you’d like to speak with a Mission Fed financial representative about any of our services, stop by one of our many San Diego-area branches or call 800.500.6328. We look forward to serving you! Mission Fed is an Equal Housing Lender.

The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. Mission Federal Credit Union disclaims any liability for decisions you make based on the information provided. This article contains a link for a website that Mission Fed does not control. Mission Fed is not responsible and does not assume liability for the operations, content, links, privacy or security policies of third party websites.

Liz Schrock

Liz Schrock

Liz Schrock is VP Consumer Lending Operations at Mission Federal Credit Union. She has been a member of credit unions since her childhood, which led to her career in the financial industry. Working in many aspects of lending, consumer lending is her passion, and nothing brightens her day like seeing a member have that dream car in the driveway. With over 20 years of experience, Liz knows how important it is to provide members with quality loan products and help them through their financial needs when they need it most.

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