When it comes to your credit score, knowledge is power. Also known as a FICO Score (created by the Fair Isaac Corporation), having a higher score and good credit is key to securing better interest rates and terms when applying for a mortgage loan, student/personal loan, or credit card – and can save your money. In fact, 90% of top lenders rely on your FICO Score to determine whether you’re a good risk. Since many financial arrangements are long term, you want to secure the most advantageous terms from the start. So if you don’t currently have a good credit score, it’s time to make an effort to bump it up.

What is a credit score?
It’s a three digit number, typically ranging from 300 to 850, that rates your credit worthiness, and is calculated from the data in your credit report. It is individual to you, even if you get married.

Tip:
When you and your partner/spouse seek out a loan or new credit together, both of your credit scores will be factored in.

What does a credit report show?
It’s a snapshot of your financial picture, both past and present. It contains your personal information, your credit account information with lenders and creditors, “soft” and “hard” credit report inquiries, bankruptcies and collection accounts. 

How to check your credit report:
It’s FREE to do, so there’s no excuse for not looking through it at least once a year, if not every month, as some experts recommend. You can request a FREE copy of your credit report yearly from each of three major credit reporting agencies – Equifax®, Experian®, and TransUnion® at AnnualCreditReport.com or call toll-free 1-877-322-8228. You can also see your credit report within 60 days of being denied credit, if you are on welfare, unemployed, or your report has mistakes in it. Actively keeping track of your credit report will tip you off to any mistakes that you can then try to correct and improve your FICO score.

Tip: During the COVID-19 pandemic, Equifax, Experian and TransUnion are continuing to offer free weekly online credit reports.

Why is a good credit score so important?
Because it will determine how much money you will have to spend on interest and fees. A high score equals better terms. A low score means higher interest rates, and more money out of your pocket. Plus, you might not even get approved or qualify, as lenders or creditors will see you as a poor credit risk. Think about it, would you lend money to a friend who’s reckless with it, never pays you back, is always late paying their bills? You want a proven track record handling money when you:

• Take out a mortgage
• Buy or lease a car
• Apply for a credit card
• Rent an apartment
• Set up an account with a utility

What is factored into a credit score?
Just as your credit report reveals your financial history, a credit score reflects your relationship with money. Here are the 5 things lenders look at, and their level of importance, before deciding whether to give you a Yes or No:

1. Payment history (35%) - Making on-time payments is #1 thing lenders look at.
   A pile of bills in a corner never did anyone any good. You have to stay on top of due dates and pay on time, or your credit score will suffer. Red flags for lenders include charge-offs, collections, bankruptcy, repossession, tax liens, and foreclosures. Setting up bill pay or automatic withdrawal are great ways to make sure you stay current with payments or at least cover the minimum due each month for credit cards, utilities, student loans, mortgage payments, and medical bills.
2. Amounts owed (30%) - Don’t use too much of available credit.
   It’s a good idea to write down the total spending limit each of your credit cards gives you and the current debt you carry. The ratio of your balances to your credit limit (or loan balance to total loan amount) is known as credit utilization. Ideally, you should keep your credit card utilization at 30% or below. You want to avoid having too much debt or high balances. Both can affect your credit score, so do what you can to keep balances low or pay down current balances.
   
   Tip: Think about doing a balance transfer of an existing credit card balance to a new card with a 0% or low introductory rate. It pays to shop around.
3. Length of credit history (15%) - A longer history is better for your overall score.
   It’s to your benefit to have credit or loan accounts going far back, as this tells a lender that you have experience handling money and an established record of maintaining accounts in good standing.
4. Credit mix (10%) - A combination of loan types is better.
   Having a variety of credit cards, retail accounts, installment loans, finance company accounts, student/personal loans, and mortgage loans show you can manage different types of loans.
5. New credit (10%) - Avoid opening too many accounts in a short timeframe.
   While it’s tempting to shop around for better deals, you don’t want to submit too many applications for “new credit” as it can ding your FICO score. Each time you submit an application for credit cards, auto loans and mortgages, it shows up on your credit report as a “hard credit inquiry.” So do your research to make sure you really want a certain financial product – and think about spacing out your applications. 
   
   Tip: Only inquiries made within the last 12 months can affect your credit score. They’ll also be removed from your credit report after 24 months.

How Can I Improve My Credit Score?
Your FICO score is never set in stone, and there are plenty of ways you can change it – for the better.

• Pay attention - While some days it’s not easy to see your total debt owed, ignorance is not bliss. Reviewing your report keeps you in the know, allows you to stay on top of identity theft or fraud, see if any loans you have co-signed are in arrears, and address any errors you may find.
  
  Tip: Since good money habits start early, young people should start keeping track of credit scores with their first credit card or loan.
  
  
• Don’t close accounts - Even if you no longer use a certain credit card, it’s smarter to keep it open as it will add to your credit history, your total available credit and your credit utilization. If you need to, maybe hide or cut up the card so you’re not tempted to charge expenses.

Tip: A card with an annual fee or high interest rate might not be worth keeping open if you no longer use it. Call your card issuer to see if you can switch to a no annual fee card.

• Think twice about cosigning any loans - While it’s generous to help out a family member or friend, you should feel really confident that they’re going to be reliable and responsible. Because, if the other person is late or misses one payment, or skips out on the loan entirely, you are still responsible for repaying the whole amount borrowed – and that will affect your credit rating.
• Monitor your credit with Bank of Hope’s Credit Sense ^SM - Free and available through online/mobile banking, now you can easily stay on top of your credit:
  • View your credit score and review your credit history — without affecting your credit score
  • Get a Credit Score Analysis explaining your score
  • Set up valuable alerts
  • Access resources to help manage your finances
  • Find out more at https://www.bankofhope.com/personal-banking/digital-banking/credit-sense

Sign in to Online Banking or download our Mobile Banking App to easily monitor your credit score.