Ensuring that your credit score is in tip-top shape is a big factor if you're looking to make a major credit purchase like a home loan, auto loan or even a personal loan. Having a higher credit score increases the chances you'll get approved for such loans, and can help improve your overall financial health as well.
One expert says that consumers should go beyond simply viewing their free credit bureau reports from TransUnion, Equifax and Experian, and speak to a financial professional about their score to analyze their current position.
"Too many people rely on credit analyzer apps which can be off by as much as 100 points," said Joseph Allen, a senior loan officer at Quontic, a digital bank. "The apps and monitoring services often exclude essential information such as collections and charge-offs, severely impacting a credit score. Second, they should consult someone that has experience reading a credit report, such as a Mortgage Banker."
Your credit score is typically one of the first things lenders look at when considering you for a loan. To ensure you're staying up-to-date with your credit status, enroll in a credit monitoring service. Credible can help you get started.
How can consumers improve their credit scores?
There are several steps consumers can take to improve their credit scores, Allen says. One is have multiple credit cards – two to three – and using them constantly. He also recommends keeping balances below 30% the limit and making on-time payments toward bills. Borrowers can keep their balances low by paying down debt or by increasing their credit limits.
"People think that by merely paying off old, bad debts, their scores will increase," he says. "Credit is very much ‘what have you done for me lately?’ Paying off a collection account that is two years old may decrease their score. It is more important to have open and active lines of credit."
Those starting with no credit score at all can also add themselves as an authorized user on a close friend or family member’s account to begin establishing credit. In doing so, the other user's card history appears on and should improve your credit record.
If you want to see where your credit score stands or enroll for credit monitoring, which will help ensure your credit isn’t affected by situations beyond your control like identity theft, visit Credible. Credible’s partners can help Americans get to know their credit profiles, dispute any incorrect charges and take steps to improve their credit.
What are the benefits of a good credit score?
There are various reasons why consumers should focus on improving their credit score. And it’s never too early to start working on a good credit score.
"A good credit score will help you to obtain cheaper credit both in fees and interest rates," Allen says. "It will allow you to have greater purchasing power. It is also a good crutch should you have an emergency or a major crisis in your life."
With enough work, consumers could drastically change their credit score in three to six months, according to Allen. They can improve their scores by getting a better credit mix or increasing their available credit.
Here’s how Americans could save with higher credit scores:
Mortgage refinances: Mortgage interest rates are at record lows, standing below 3%, according to the latest data from Freddie Mac. Homeowners with good credit scores – 670 or above on the FICO scale – and a robust credit history can take advantage of these low rates. Visit Credible to find rates from multiple lenders at once and select the best rate for you.
Student loan refinances: Headed into the 2021-2022 school year, student loan borrowers can also take advantage of today’s historically low rates. Borrowers with private student loans can refinance them into today’s low rates and save money on their monthly payments. The higher their credit score and better their payment history, the lower their rate will be.
In fact, an analysis conducted by Credible found that borrowers who extended their loan terms by an average of 53 months reduced their payment by $253 monthly.
Personal loans: Consumers can take out a personal loan at lower interest rates that can even be used to help pay down high-interest credit card debt. This cycle will continue to improve consumers’ credit scores and continue to open new financial opportunities. Visit Credible to see how much you could save with a personal loan.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at email@example.com and your question might be answered by Credible in our Money Expert column.