Your credit score is a key factor in qualifying for loans, renting apartments, and even getting certain jobs. Find out some credit score basics and tips to help you build and boost your score.
Your credit score isn’t just a number – it can open doors to new opportunities, from getting a loan or renting an apartment to landing your dream job.
A strong credit score can unlock better interest rates and make it easier to get approved for credit when you need it. Want to take control of your financial future? Read on for the essentials of how credit scores work and practical tips you can start using today to build and boost your score.
What is a credit score?
A credit score is a 3-digit number, typically between 300 and 850, generated by credit bureaus (Equifax, Experian, TransUnion) that banks and other lenders use to estimate how likely you are to repay a loan on time.
It’s calculated based on your history of borrowing and repaying money, including factors like payment history, the amount you owe, length of credit history, types of credit used, and recent credit inquiries.
The higher your score, the more likely you are to qualify for loans and credit offers.
If you’re trying to build your credit, Arizona Financial offers secured credit card as a great starter credit card. Learn more.
Steps to build and improve your credit score
1. Pay your bills on time
Your payment history is the most important part of your credit score. Always pay credit cards, loans, and other bills on time. Late payments can negatively impact your credit score and may stay on your record for years.
Tip: Set up automatic payments or reminders to help you avoid missed payments.
2. Keep credit card balances low
Try to use no more than 30% of your available credit limit on any credit card. High balances can negatively impact your score – even if you pay in full each month.
3. Pay more than the minimum
Whenever possible, pay more than the minimum amount due to reduce your balance faster and help your credit score.
4. Avoid opening too many new credit accounts
Applying for multiple credit cards or loans in a short period can lower your score. Only apply for credit when you need it, and space out the time period of your applications.
Hard inquiries can temporarily lower your score
Each time you apply for credit, it triggers a “hard inquiry” on your credit report which can temporarily lower your score.
Soft credit inquiries do not impact your credit score
When you check your own credit score through a free app or when a lender pre-approves you for an auto loan while you’re shopping for a car, these are considered “soft inquiries.” Soft credit inquiries do not impact your credit score.
5. Check your credit reports regularly
Review your credit reports for errors and dispute any inaccuracies you find. Free apps like Credit Karma and Experian let you easily check your credit report and monitor your credit score. You’re also entitled to a free credit report every year from the three main credit bureaus (Experian, Equifax, and TransUnion).
6. Don’t close old accounts
The length of your credit history matters. If you can, keep older credit accounts open – even if you don’t use them often. This helps your average account age stay higher.
7. Have a mix of credit types
Having different kinds of credit, like a credit card and a car loan, shows your ability to manage different types of debt and can boost your score. But only take on debt you can manage and need.
8. Be careful with co-signing
If you co-sign a loan or credit card, you’re responsible for the debt. If the other person doesn’t pay on time, your credit score can suffer.
Keep in mind that a strong credit score can lead to valuable opportunities, such as qualifying for better interest rates and making loan approvals smoother.
Maintaining a strong credit score takes awareness and thoughtful action. By monitoring your credit reports, keeping old accounts open, having a mix of credit types, and understanding the risks of co-signing – you’ll set yourself up for financial success.
