Resolutions That Pay Off: How To Improve Credit Score in the New Year

As you begin thinking about your New Year’s resolutions, don’t forget to set some financial goals for the upcoming year. Set a goal of improving your credit score to help ensure a bright financial future. A good credit score can help you achieve other goals, such as buying a home, renting a new apartment, or purchasing an automobile.

Understanding Credit Scores: What Is Credit?

If you don’t know much about your credit and credit score, you’re not alone! In fact, in a 2019 study, CNBC found that four out of 10 Americans had no idea how their credit score was determined. For many U.S. consumers, a credit score can feel like a black box shrouded in mystery. In this blog, we hope to clear up some of the fog surrounding credit scores. A credit score is essentially a three-digit number ranging from 300-850 that indicates your credit risk level, especially when you’re applying for a loan or financing. You may hear your credit score defined as a FICO score. This is because the Fair Isaac Corporation (FICO) created the credit score model. 

Why Do Credit Scores Matter?

For those who are new to learning about credit and credit scores, you may not understand why having a good credit score matters. The reality is that your credit score is taken into account in many different situations. Credit scores are considered when you need a home loan or mortgage, if you apply to rent an apartment, when applying for credit cards, and more. Lenders typically offer significantly better interest rates on loans to those with better credit scores.

How Are Credit Scores Determined?

You may be wondering how credit scores are determined. FICO breaks down factors influencing your score into percentages, where higher percentages mean a higher impact on your score:

• 35% payment history. Have you paid off past debt on time (credit card bills, loans, etc.)?
• 30% accounts owed. How much debt do you have? What percentage of your credit do you use? 
• 15% length of credit history. How long have you had credit accounts? 
• 10% credit mix. Do you have a variety of credit accounts? 
• 10% new credit. Have you opened several new accounts in a short period of time?

How To Improve Credit Score Through Good Financial Habits

How To Improve Credit Score With Credit Card

If you’re a student or a younger adult, you may not have many credit accounts yet. While you don’t need a credit card to build your credit score, responsibly using a credit card can go a long way toward improving your score. When you get your first credit card, spend responsibly by paying your balance as soon as possible and only using your credit card for items you can afford. Many consumers opt to use their credit cards exclusively for necessities they can afford, like gas and groceries.

Monitor Your Loans and Credit Usage

Whether you have installment loans, a credit card, or another type of credit account, keeping track of your credit utilization is essential. Look for credit cards that allow you to view usage online, such as Landmark National Bank’s credit cards. A general rule of thumb is to keep your credit utilization below 30% of your overall limit. For example, consumers with a $10,000 credit limit should keep their balance below $3,000. To keep your credit utilization low, pay off your statement frequently. 

Make All Credit Card and Loan Payments on Time

Since payment history is a significant factor in your credit score, it’s essential to pay credit card bills, loan installments, financing accounts, and mortgage loans on time. Late payments can lower your score and stay on your credit report for months or years. If you have trouble remembering to make payments, try these strategies:

• Use autopay when available.
• Create a reminder on your smartphone’s calendar app to make payments.
• Set up bill pay reminders if possible.

Review Your Credit Report Frequently and Request Corrections When Needed

Your credit score is broken down in detail on your credit report, which is a summary of your credit history and usage. In short, your credit report basically determines your score. Checking your credit report frequently can help you catch potential errors made by the credit agencies that generate the reports and possibly improve your credit score. You can get a free credit report at annualcreditreport.com, a website run by the three major credit bureaus in the U.S.

Frequently Asked Questions About Credit Scores

Do Student Loans Affect Credit Score?

Yes, student loans affect your credit score. They are considered installment loans, and timely payments can help build a positive credit history. However, missed or late payments can negatively impact your score. Additionally, the amount of student loan debt can influence your credit utilization and overall creditworthiness. Managing your loans responsibly is important to maintaining or improving your credit score.

Do Medical Bills Affect Your Credit Score?

Yes, medical bills can affect your credit score if sent to collections. Unpaid bills typically don’t appear on your credit report directly, but once a medical provider turns the debt over to a collection agency, it can negatively impact your score. However, some credit scoring models weigh medical debt less heavily than other types of debt. Paying off the collections can help improve your score over time.

Build Your Credit Score for HELOC Loan and More With Landmark National Bank

If you’re ready to take the first steps toward a better credit score, let Landmark National Bank help. Check out our personal credit card options, which can be a great first step toward building credit. If you’re improving your credit score to buy a home, Landmark has home loans that can help you through the process. Start on your path toward meeting your financial goals with the support of a truly excellent bank. Locate your nearest Landmark National Bank branch to get started. At all our Kansas bank branches, you’ll find friendly banking professionals happy to help you with your banking needs. You can also find more helpful articles on personal finance, budgeting, estate planning, and more on our blog.