Tips for Improving and Maintaining a Healthy Credit Score - Money Tip Tuesday

How's your credit score? Is it in tip-top shape, or maybe it could use a little bit of love? The fact is that your credit score is one of the most important financial metrics we use today and how we manage and nurture it makes a huge difference in shaping your financial opportunities. By managing and improving it, you can secure better loan terms and lower interest rates, paving the way for a healthier financial future.  

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Transcript:

Welcome to Money Tip Tuesday from the Making Money Personal podcast.  

A credit score might seem like a mysterious three-digit number, but it holds significant influence over your financial life. Whether you're applying for a loan or a credit card, renting an apartment, or even setting up utilities, your credit score plays a crucial role in the decisions that lenders, landlords, and service providers make. Your credit is a valuable asset, and credit score awareness can be a crucial piece in overall financial wellness and identity theft protection. In this tip, we want to remind account holders of the importance of understanding credit scores and provide some tips to help them improve and maintain a healthy credit score.  

What Is a Credit Score?  

Simply put, a credit score is like a grade for how good you are at managing money. It is one of the most important tools that lenders and financial institutions use to assess the risk of lending money to you. A higher credit score indicates a healthy credit history; therefore, a lower credit risk, making you more appealing to potential creditors. Credit scores typically range from 300 to 850, with higher scores being better, indicating that you have consistently made payments on time to satisfy your credit obligations. While a "good" credit score varies based on the lender and the specifics of the loan request, it is typically around 700 or higher. Once your score is over 760, you may expect to be offered the best available rates. Credit agencies refresh scores once a month, but the exact timing of those updates may vary based on a myriad of factors. 

How Is a Credit Score Calculated?  

You might be surprised to learn that you can have multiple different credit scores at the same time. Based on where the lender obtained their data (from one, two, or all three credit reporting agencies), the credit score model that is used, the lender’s own criteria for issuing credit, and the timing of when the score was produced. A hypothetical scenario for calculating a credit score might weigh the following factors this way: 

• Payment History (35%): This is the most important part. It's like getting a gold star for paying bills on time. If you pay on time, your score goes up. If you miss payments, it goes down. 

• Credit Utilization (30%): Imagine you have a money jar, and you use only a little bit of it. That's good for your score. But if you use a lot of it, it's not so good. This measures how much of your available credit you're using. 

• Length of Credit History (15%): The longer you've had credit (like a credit card or loan), the better. It's like experience points. More experience means a higher score. 

• Credit Mix (10%): Having different types of credit, like credit cards and loans, can be like having a diverse team. It's good for your score, but you don't need to have them all. 

• New Credit (10%): Every time you apply for new credit, like a loan or a credit card, it can slightly lower your score. Too many applications at once can hurt your score. 

Lenders will also look at other factors, such as your income, your assets, or how long you have been at your current job. Note that a high credit score isn’t the only sign of financial health. An individual who chooses to use cash or debit cards for major purchases rather than taking out loans will likely have a lower credit score than someone with a long record of multiple well-managed debts, even though they may be very financially responsible.  

  

Why Does Your Credit Score Matter?  

• Getting Credit: When you need to borrow money, like for a credit card or a car loan, lende