Take Charge of Your Credit Score

Not long after I finished college, I bought my first car. I applied for a loan and was surprised by the high interest rate, making it difficult to afford. The lender explained that the rate was high because my credit score was not great. More about that in a minute. Back then I had no idea what my credit score was nor what I could do to change it. I’ve learned a few simple ways since then to improve my score and make borrowing less expensive.

What’s a Good Credit Score?

Let’s start with the basics, like a “good score” and a “not so great” score. Your credit score is like a grade summarizing your past credit behaviors. Evidently, my credit score back in the day didn’t match my stellar school grades. The good news – or not, depending on your behavior — is that your credit score can change. Thankfully, this isn’t like the proverbial “permanent record.” We’re not stuck with a score reflecting poor habits and inexperience.

There are different models, but the FICO® score is most common. It ranges from 300 to 850, and higher is better. Scores above 670 are considered good, while scores below 580 are considered poor. Yours truly is firmly in the 700s, thank you very much!

Five Components of a FICO® Credit Score

You’ll notice that payment history and amounts owed account for 65% of the score, which is massive. Focus on making payments on time and keeping your overall debt balance low to have the greatest positive impact.

How Do I Improve My Credit Score?

Ok, Katie, how to do I improve on “making timely payments and keeping my debt low”?

So glad you asked!

Consider these best practices as you strive to improve your credit score.

• Budget like a boss. If you don’t already have a spending plan for your money, it’s time to make one. Knowing where your money is going each month is powerful. Using your budget to direct where your money should go to pay your bills, manage unplanned expenses, and achieve your goals can be life changing.
• Pay bills on time and don’t skip payments. A budget will help you allocate money to pay your bills, but you still need to actually pay them on time. Set up a bill pay calendar with due dates and consider scheduling automatic payments to stay on track.
• Pay off your credit card balance each month. This may not always be possible, but if you need to carry a balance keep it as low as possible and always pay more than the minimum.
• Don’t apply for credit you don’t need. I had a retail credit card from my favorite clothing store. For me, the perks did not outweigh the high interest rate, fees, and additional debt load. Plus, the temptation to spend was always there, even if I didn’t have the money to pay for my purchase.

Practice Patience

Improving your credit doesn’t happen overnight. It takes a little time and patience. Stick to the plan by following the healthy habits above and you will see improvement. Beware of any organization that claims to “fix credit quick” for a fee. Often, you can accomplish the same results on your own without the associated cost.

Check Your Credit Reports

Finally, it’s a good idea to check your report card every year.

The three major reporting agencies — Equifax, Experian, and TransUnion — are required to provide you a free copy of your credit report annually upon request. Visit www.annualcreditreport.com to access yours. Make sure the information on your report is accurate.

Following these principles will help you improve your score and save money when you need to borrow. You will also build a strong foundation to meet your goals today and in the future.

The USAA Educational Foundation is a nonprofit, tax-exempt IRS 501(c)(3) and cannot endorse or promote any commercial supplier, product, or service. The content of this blog is intended for information purposes only and does not constitute legal, tax, or financial advice.