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What is a credit score?
How is a credit score calculated?
Want to improve your credit score?
Track your credit score with Spero digital banking.
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Let’s say you want to take out a car loan, rent an apartment, or get a mortgage. Early in the process, you'll need to show lenders that you are a responsible borrower. Your credit score is one of the best indicators that you can be trusted to repay what you borrow. That’s why establishing and maintaining a good credit score is so important.
What is a credit score?
Think of your credit score as your financial resume or reputation — a financial snapshot that gives lenders a better idea of your financial trustworthiness. The better your credit score, the more lenders will trust you and the better access you’ll have to favorable rates and terms.
How is a credit score calculated?
Five key elements determine your credit score:
Payment history
Your payment history accounts for 35% of your credit score. Fortunately, establishing a positive payment history is simple — just pay all your bills on time. This is especially critical because even one missed payment can lower your score.
Total amount owed
The amount of your total credit limit you are currently using makes up 30% of your score. Rule of thumb: Aim to use less than 30% of your available credit limit.
Length of credit history
The amount of time your credit accounts have been open makes up 15% of your score. The longer your credit history, the better.
New credit
New lines of credit make up 10% of your score. Avoid opening multiple credit cards or loans at once, as that can reduce your score.
Types of credit used
The types of credit you use make up 10% of your score. A good mixture of revolving credit (like credit cards) and installment payments (like an auto loan) shows that you can manage different types of credit successfully.
Want to improve your credit score?
Here are a couple strategies you can use to give your credit score a boost this year.
First, make all your payments on time and in full. This may seem like an obvious step, but keeping up with regular payments takes intentional planning. And since missed payments can be costly, setting up auto-payments is a great way to avoid missing any due dates.
If you’re struggling to make payments on multiple debts, consider a debt consolidation loan or credit card balance transfer. That way, you only have to keep up with one payment each month. Plus, by consolidating your debt, you may be able to get a lower APR, so you’ll end up paying less interest over time.
Second, use your credit card responsibly. In general, it’s a good idea to treat your credit card like a debit
card, spending only what you know you can pay back with the money currently in your checking account.
Of course, that’s not always possible. Emergencies happen, and a credit card can be handy in a pinch. However, if you’ve been careful about using your credit card up to that point, you will have a smaller total amount to pay back over time.
Track your credit score with Spero digital banking.
How can you tell if your score is actually improving? Simply log in to digital banking and access our free credit score tool.
You can set credit score goals and track your progress over time. Plus, you can review your transactions, payment history, and credit inquiries to protect yourself against fraud.
It’s also helpful for financial planning. Use it to simulate how taking out a loan could impact your score and apply right there in the tool.
Improving your credit score can feel intimidating at first, but if you commit to working on it over time, you'll see results.
Membership required. This material is for educational purposes only and is not intended to provide specific advice or recommendations for any individual.
