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Your Credit Score

Your Credit Score

Your Credit Score is a major factor in your financial life. Your credit score is something you really need to check at least once a month to make sure it is where it needs to be.  It has a big impact on your finances and should not be ignored.

A credit score is the number that shows how creditworthy you are and indicates if you are a good credit risk or not. Your credit score impacts so many aspects of your finances, you may not realize how much.  

I’m sure you know that it influences whether or not you are approved for loans.  But it also determines the amount of interest you will pay on those loans.  It has an effect on your home and car insurance rates.  And it can also impact whether you get that job or apartment you are dying to get.

If you don’t know your credit score, I highly recommend you create a free Credit Sesame account. Credit Sesame  updates your score monthly and also grades you on the five major factors that impact your credit score, which is a great help if you need to improve your credit score. Not to mention that Credit Sesame  also give you recommendations based on your personal situations, which is an awesome bonus!

What makes up your credit score

  • 35% Payment History – Always pay your bills on time! The longer you’ve made all your payments on time the better your score.
  • 30% Credit Usage – Owing a lot of money isn’t necessarily a problem. Utilization ratio looks at how much credit you use versus how much you have available. Owing less than 30% is good but under 10% is great.
  • 15% Credit Age – Having long relationships with creditors is a good way to get and keep a good credit score.  It shows that you are responsible and the creditors you have want to keep your business.
  • 10% Account mix – Having different types of credit accounts shows that you are responsible and are able to manage your money. You should have a good mix of credit and store card, as well as bank loans such as personal loans, car loans or a mortgage.
  • 10% Credit Inquires – Applying for new credit frequently is not a good sign to creditors. It makes you look desperate for money which negatively impacts your score.

Improving your credit score

You should aim to get your credit score to at least 700 which is considered a good score, 750 and over is considered an excellent credit score.

If your credit score needs a bit of improvement, it is so important to bring your score up.  You should start by looking at how you grade on each of  the five factor that make up your credit score. Credit Sesame  make it so easy to see where you should start in your journey to improving your credit.   

Start by looking at the factors you rank the lowest on and work on those first. Then work your way through each of the others  and find ways to improve them.

  • Payment History – If your payment history score is low, the easiest way to get it up is to pay your bills on time every month.  Even if you are the paying the minimum, just one or two late payments can really bring that score down.
  • Credit Utilization – If your credit utilization is too high, work on paying down your creditors.  Aim to get it down to under 30% to start, but your goal should be to get and keep it under 10%.
  • Credit Age – If you have low aged accounts, make sure you do not close any accounts, even if you don’t use them anymore. Closing just one account will impact that credit score.
  • Account Mix – Aim for a good account mix, this would consist of loans, credit cards and store cards.  If all your debt is in credit cards, you could try consolidating some of that debt into a personal loan to help give you a better account mix.
  • Credit Inquires –  Credit inquires is the number of times a creditor checks your credit. This should be a low number.  Once an inquiry is on file it stays there for 12 months.  Do not apply for a buch of credit all at the same time.

Improving your credit score is not an impossible goal, even when you are struggling financially.  Every small step you make to improve it will go a long way.  You credit score has so much to do with every aspect of your finances. It is something you really need to keep track of and do your best to improve.   Not only to save money, but for your overall financial health.

Do you have tips to help improve your credit score?  Please leave a comment to share it with the rest of us!!

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