FDIC-Insured - Backed by the full faith and credit of the U.S. Government7 Smart Ways to Improve Your Personal Credit Score
When it comes to managing credit, people have lots of questions. Pam Days-Luketich has pretty much heard them all. As Vice President in Community Development at Liberty Bank and a former professor, Pam has spent decades teaching people about money.
But when advising anyone about managing credit – or even other aspects of their financial lives – she always starts from the same place.
“Before you can achieve any goal, you need to know where you’re at,” she says. “Then you can make a plan to move forward.”
If your goal is to establish credit, improve your credit score, or qualify for a loan, here are some smart steps Pam recommends you take:
1. Know what you owe. To improve your credit, you first need a clear picture of your finances. That means understanding:
- Your credit card and loan balances
- Interest rates
- Monthly payments
- Fees
- Due dates
Having this information – and being aware of when payments are due – can help you avoid late payments and create a realistic plan to improve your financial health.
2. Understand the difference between your credit report and credit score. When people think about credit, they often focus only on their credit score, but as Pam points out, that’s only part of the picture.
“Think of your credit score as your grade in school,” she explains. “Your credit report is all the tests and quizzes that make up that grade.”
A credit score is the number lenders use to quickly evaluate your creditworthiness. Your credit report, however, contains the detailed information behind that score, including your payment history, balances, and account activity.
3. Review your credit report first. If you want to fully understand your credit, start by reviewing your credit report from the three major credit bureaus – Experian, Equifax, and TransUnion.
Your credit report includes:
- Credit cards and loans
- Payment history
- Current balances
- Credit limits
- Late or missed payments
- Collections or bankruptcies
- Length of credit history
- Requests for new credit
Reviewing your report can help you identify mistakes, fraud, or problem areas that may be hurting your credit so you can take steps to improve it. You can get free copies of your credit report from all three credit bureaus at AnnualCreditReport.com.
4. Monitor your credit score. Once you understand your report, you can begin tracking your credit score. Many banks and credit card companies now provide free scores through mobile banking apps or monthly statements. At Liberty Bank, for example, we offer credit score monitoring right from your mobile device that offers real-time scores and alerts, as well as other tools to help you reach your goals.
Speaking of goals, if you’re preparing to apply for a mortgage or major loan that requires a certain credit score, Pam recommends checking your score through myFICO.com, since most lenders use FICO scores when evaluating borrowers. “That will give you the most accurate representation of the scores lenders use.”
5. Make on-time payments a priority. One of the biggest factors affecting your credit score is your payment history.
“People don’t realize that even one missed payment can negatively affect your credit score,” Pam says.
And it’s not just loan or credit card payments that influence your score. Utility bills, cell phone accounts, or even cable equipment you’ve forgotten to return can show up on your credit report.
To ensure you don’t miss payments, Pam recommends setting up automatic payments or reminders. If you’re uncomfortable providing your bank account or debit card information to multiple billers, she suggests linking recurring bills on your credit card and then automatically paying the card through your bank account.
6. Keep credit line balances low. Another major factor in your credit score is credit utilization, or how much of your available credit you’re using.
Keeping balances low can help improve your score. And contrary to popular belief, you do not need to carry a balance month to month to build credit. Paying your balance off in full can still positively impact your score.
7. Avoid frequently opening and closing accounts. Opening and closing credit cards too often can also affect your credit. So, while those tempting discounts department stores offer for opening a credit card may sound appealing, opening too many accounts in a short period of time can hurt your score.
No matter how you feel about credit, it’s an important tool in your financial life. Good credit can not only help you qualify for a loan but also help you get better rates that can save you money. It can also provide a safety net if you experience unexpected expenses.
The key is to use credit responsibly and make it work for you – not against you.
Let us help you build the credit you need for life.
If you need a little help establishing or repairing credit, Liberty Bank has programs and support for you, including:
- Credit Builder Loan and Saver Program: A loan designed to help you establish strong payment history and build your credit score over time.
- Secured Credit Card: A credit card that’s backed by your own funds that can help you build and use credit responsibly.
- Academy for Financial Wellness: A no-cost financial education program to help you manage your money with confidence, reach your goals, and achieve financial success and independence.
This article is provided for educational purposes only and does not constitute financial, tax, legal, or credit advice.