What Your Credit Score Affects and How to Fix It

While nearly every adult in the U.S. has a credit score, people’s understanding of them vary greatly. Some are diligent about maintaining stellar credit, reviewing reports, and avoiding temptations that can ding their credit. Others know that they have a credit score but have no idea where they fall on the scale, or what to do about it. The fact of the matter is that a good credit score opens many doors for you and your family. A bad one, on the other hand, may force you to struggle to get things you want or even need. We’ll look at how your score is assessed, what that means, and what to do about it.

How Credit Scores are Determined

Your credit score is calculated by three major credit reporting agencies. There are five key factors they evaluate to determine your score. They are your payment history (your track record for paying bills on time), the age of your credit (how long you have had open accounts and managed them), the types of accounts you have (credit cards, student loans, mortgages, etc.), your debt usage (how much of your available credit you use, with an ideal number being between 10 and 30%) and your application history (how often you apply for credit or consolidate/transfer balances.) A perfect credit score is 850, with anything over 800 considered “excellent,” anything over 700 considered “good,” and anything below 580 considered “poor.”

What Your Credit Score Means to You and Your Family

To put into perspective what these numbers mean, and if you should get help to fix your credit and improve your family’s quality of life, we’ll look at some major areas where credit scores come into play. Most obviously, applying for credit in the form of credit cards or loans is the biggest one. In some cases, less-than-good credit scores may make it impossible to borrow higher amounts to buy a home or will force you to do so at a much less favorable interest rate. This can mean your hopes of owning a house for your family could be delayed. The same is true for automobile loans.

Credit scores also factor into your ability to refinance debt. You may wish to take out a home equity loan or home equity line of credit. If you have a good score, this is usually easily done as banks see this type of loan as a low risk with a qualified borrower. But, if your credit score doesn’t meet your threshold, you may be stuck settling with personal loans with worse terms and rates or having credit cards be your only debt consolidation option. If you want to borrow to start a business, your personal credit score can throw a wrench in your ability to secure funds as well.

The Difference Between Improving and Fixing Your Credit Score

The road to rebuilding credit is, of course, raising your score. While making higher payments on time, avoiding applying for new credit, and building up savings can help, many people focus on improving their score rather than fixing it. Let’s say your credit score is 650. You may set a goal of hitting 700 within a year or two. Taking the above steps to improve it is all well and good, but a surprising number of people don’t think to see what is in their credit report. There are many ways to request a free report. Once you have it, the most important thing you can do is review it thoroughly and make sure it is accurate. Errors do occur, and if you haven’t seen your report, you wouldn’t even know if. If there is an error, follow the appropriate steps to dispute it.

As important as your credit score is, you should use every resource to make sure it’s as high as possible, and that starts with making sure it’s accurate. If it isn’t, act to fix your credit, to help your family live the life they deserve!