How Good is Your Credit Score and Why Does it Matter?

A credit score is an important three-digit number that lets lenders (like banks and credit card companies) know if you are able to repay money you borrow. A high credit score can get you better loan terms, lower interest rates, and improved access to financial opportunities.

What Your Credit Report Says About You

Your credit score is calculated based on what’s in your credit report, a detailed document created by credit bureaus. This report tracks your credit history across several key factors:

• Payment History: This is the biggest factor and shows your track record of timely payments. Late payments are the most damaging factor to your score.
• Credit Utilization Ratio (CUR): This is the amount of credit you’re currently using compared to your total available credit. Maxing out credit cards hurts your score in a major way.
• Length of Credit History: Generally, a longer credit history with responsible usage looks better to lenders.
• Credit Mix: Responsible management of different credit, like credit cards and installment loans (mortgages, cars), can boost your score.
• Inquiries: Too many new requests for a copy of your credit report in a short period can slightly lower your score.

The Credit Score Spectrum

Credit scores typically range from 300 to 850. Here’s a general breakdown:

• Exceptional (800+): Qualify for the absolute best interest rates and terms.
• Very Good (740-799): Prime borrower status; eligible for highly favorable offers.
• Good (670-739): Solid credit; generally qualify for standard rates and terms.
• Fair (580-669): Below average; may qualify for loans, but rates will be higher.
• Poor (below 580): Obtaining credit will be challenging and interest rates will be very high.

How to Improve Your Credit Score

The good news is that your credit score is always changing, and improves with responsible financial moves. Focus on these strategies:

1. Pay Bills On Time, Every Time: This is the most critical step. Consistent, on-time payments are the biggest positive influencer on your score.
2. Maintain a Low Credit Utilization Ratio (CUR): Keep your credit card balances as low as possible. Experts recommend keeping your total CUR below 30%, but aiming for under 10% is ideal for an excellent score.
3. Handle Credit Cards Responsibly: Do not max out your cards. If possible, pay your statement balance in full each month.
4. Review Your Credit Report Regularly: Check your report for errors and dispute any issues immediately. You are entitled to a free copy of your credit report annually from each of the three major bureaus at Annual Credit Report.
5. Mix Up Credit: Responsibly managing a mix of credit types shows strong financial management.
6. Be Cautious with New Applications: Only apply for credit you genuinely need to avoid hard inquiries that can temporarily lower your score.

Uber/Lyft Drivers Get FREE Financial Counseling

As an IDG Legal benefit, you have access to free financial counseling. A certified financial counselor from The SafeGuard Group, a Nonprofit 501(c)(3) Agency, can provide a personalized analysis of your financial health.

This confidential service can help you:

• Review and optimize your budget.
• Conduct a thorough Debt Analysis.
• Analyze your credit line and report.
• Be referred to a Debt Management Program (DMP), if needed, to work with your creditors.

Tap below to fill out a form and connect with a financial counselor. Or call us at (646) 687-7587.