April is Financial Literacy month and we are highlighting the topic of credit scores since it impacts so many areas of everyone’s financial life. You may know some of the obvious uses of a credit score- like applying for credit cards and loans. But did you know 90% of insurers (auto, home, etc) use it to help decide if they’ll offer coverage and what premiums to charge? And that credit scores are often used when people want to rent an apartment, set up utilities, buy a cell phone, even apply for a job? For all of these reasons and more, it’s important for everyone to understand their credit score.
We start with understanding what impacts a credit score: payment history (35%), credit utilization (30%), length of credit history (15%), types of credit (10%) and new credit inquiries (10%). As you can see, payment history and credit utilization together make up 65% of the score.
If people want to improve their score quickly, making all payments on time and in full every month and keeping utilization (how much of your available credit you are using) below 30% are the most important things they can do.
During the Coronavirus pandemic, some financial institutions and credit card issuers are giving their customers a break with payments and/or interest rates if they reach out early and while their accounts are still in good status. Some have also said that any late payments won’t be reported to the credit bureaus, to help protect customer credit scores during the pandemic. If you or anyone you know has lost income or may be struggling making payments, check with banks and/or lenders early to get as much help as possible keeping accounts in good standing.
Good credit management even during a financial crisis can lead to a higher credit score, eventually saving money when buying a house, car, or just everyday shopping. Get your credit score working for you.