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Build Credit With Confidence
Your credit score plays a role in many big moments, from buying a car to applying for a mortgage. Understanding how it works will help you make more confident decisions and keep more options open.
The good news is that credit scores aren’t permanent, so even if you don’t have a great credit score right now, you can improve it over time with good credit habits. Let’s get started!
What Makes Up Your Credit Score
How does the number actually add up? Multiple scoring models exist, and the most-used credit scoring models are FICO and VantageScore®, which both use a scale from 300 and 850 — the higher the number, the better. At Grow, we use the VantageScore® model, which considers four key factors.
Length of credit history and types of credit
Lenders like to see that you’ve responsibly handled credit over time, so the longer your accounts have been open in good standing, the better. A diverse mix of well-managed accounts shows how you manage debt, from unsecured loans (credit cards) to secured loans (auto loans and mortgages).
Credit utilization and available credit
It’s beneficial to your score to keep your credit utilization, the percentage of available credit you’re using, to around 30% or less. Paying down higher balances can improve this factor. Having unused credit — without maxing out your cards — works in your favor. It shows that you have access to credit but aren’t overly reliant on it.
Balances and debt
The total amount you owe across all credit accounts represents your total debt. Keeping debt levels manageable can positively affect your score because it shows you’re wise with credit and don’t go overboard.
Recent credit behavior
The number of new accounts or recent credit inquiries also matters. While this factor isn’t as influential as the others, opening too many accounts over a short time can ding your score. The good news? VantageScore® considers inquiries made within a 14-day period as a single inquiry, so feel free to shop around for rates and preapprovals when needed for loans.
How To Improve Your Credit Score
If your credit score isn’t what you want it to be, don’t worry. It isn’t set in stone, and you can improve it over time. Here’s how:
Pay bills on time
Being consistent with timely payments is the single most important way to improve your score. Automated bill paying services, such as Grow Online Bill Pay, can ensure that your payments are made on time, every time.
Reduce your debt
Got a maxed-out card? Un-max it. Make an effort to pay down or pay off unsecured debt, like credit cards and student loans. Carrying a small balance from month to month is fine, but you can avoid interest by paying off your credit card each month.
Keep older accounts open when you can
Closing long-standing accounts shortens your average account age and reduces your total available credit, so keeping a credit line available and using it only sparingly can benefit you. But we want to add a caveat to this advice. If you’re struggling with credit card spending, removing the temptation by closing the card can sometimes be the smarter move in the long run.
Apply for new credit carefully
Too many credit applications can decrease your score, so be strategic when applying for new credit.
Be patient and consistent
Your score won’t improve overnight, but it will improve. Just making payments on time for six months can increase your score a bit. Past mistakes, such as late payments, do eventually fade. Most negative marks fall off within five to seven years. In the meantime, do your best to live within your means, create a budget that’ll help you navigate debt and be diligent.
Explore Credit Education
How Do I Build Credit?
Learn how to boost your credit score and create a long-term plan that works for you in this 5-minute Coach session.
Good Credit Habits
Ready to improve your credit? Work on developing good credit habits that will have a positive effect on your finances.
Understanding Your Credit Report
Your credit report provides a detailed overview of your relationship with credit, so it’s important to review it regularly.
Get Your Free Credit Report
Keeping a close watch on your credit will arm you with information and help you catch fraud or errors quickly so you can dispute them. You’re legally entitled to a yearly free credit report from each of the three major credit bureaus, so take advantage! The official way to obtain your free reports is through AnnualCreditReport.com. We caution you against using other third-party websites to obtain your credit score, as they could be scams or could provide inaccurate information.
