Oct 11, 2016 4 min read

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Who’s keeping score? The credit industry is. Every time you apply for a new credit card, a mortgage, perhaps even an insurance policy or a job, your application is judged in part on your credit score.

If your credit score is lower than you’d like due to missed payments or maxed-out cards, you may feel like you are doomed. Don’t lose all hope. Raising your credit score is possible and worth the effort. But first, let’s take a closer look at exactly what a credit score is and the effects it can have on your life.

What is credit score?

A credit score is a three-digit number that lenders use to objectively measure your creditworthiness. Credit scores range from 300 to 850. A score around 700 is considered good, while anything above 720 is excellent. A score below 620 is generally considered poor. Your credit score is a snapshot of your finances at a particular moment in time. As information in your credit file changes, so will your credit score.

What factors are taken into consideration for my credit score?

First, it’s important to know what’s not factored into your credit score. Race, color, religion, national origin, sex, marital status, age, source of income by law cannot affect any credit transaction or decision. Credit information falls primarily into five categories. They are:

• Payment history. This is perhaps the most important factor. Avoid being late on payments of having accounts sent to collections.

• Total debt. How much overall debt you have is a factor. How many credit cards have balances on them? How many are close to their limits? How close are you to your overall credit limit?

• Length of credit history. Are you an emerging consumer or someone who has paid bills on time for 10 years?

• New credit. A flurry of activity and inquiries on your credit report can raise suspicion.

• Credit mix. Keep a healthy mix of credit: bank cards (VISA®, MasterCard®), store cards, gasoline cards, lines of credit, etc.

Who uses my credit score?

Lenders are the primary, but not the only users of credit scores. Employers, landlords, insurance companies and other businesses may also check credit scores to evaluate applicants.

What happens if I have a low credit score?

Each lender sets different ranges for what it considers “good” and “bad” credit scores. Consumers with lower credit scores often pay higher interest rates on mortgages and credit cards because they’re viewed as riskier customers.

What can I do to improve my credit score?

It’s not easy to change your credit score dramatically in a short period of time. Your credit score takes you entire credit history into account. If you’ve chronically paid bills late, you’ll need to change your habits to see a change in your credit score. The best thing you can do to improve your credit standing is to pay bills on time and keep your balances low on credit cards and other revolving accounts.

Where can I find my credit score?

In years past, you could only learn your credit score if you were turned down for credit. Even then, your score likely wasn’t explained to you. Fortunately, consumers are gaining more access to their credit scores and learning more about what the numbers mean. In addition, the Fair and Accurate Credit Transactions Act (FACT Act) of 2003, which amends the Fair Credit Reporting Act, requires each major credit bureau (Equifax, Experian and Trans Union) to provide one free credit report annually to consumers who request a copy. You can call 877-322-8228 or visit annualcreditreport.com. You can also obtain credit score information for a reasonable fee.

Be sure to check your credit report annually and each time you receive it and to eliminate or correct any errors as soon as possible. A clean credit report will really pay off! n

Jim Lyle is Vice President of Sales at Community Bank. Community Bank is a locally owned, independent bank that offers comprehensive financial services to regional businesses and residents. Community Bank also offers Insurance and Wealth Management services. Mr. Lyle is located in Community Bank’s Washington Business Center office and can be reached at 724-223-8311.