Qualifying for credit and loans has always been a big part of financial health.
But never has it been more important to understand how credit works (especially in a high interest rate environment), and why getting a loan can depend on your credit score.
Having a good credit score will help determine whether you qualify for a mortgage, a car loan or even a new credit card. So let’s dive in with everything you need to know about building your credit score.
But first, what exactly is a credit score?
If you’ve ever used credit, then you have a credit score. Your score is a number between 300 and 850 that lenders use to decide whether or not you can borrow money from them. The higher your score, the better your chances of getting a loan.
A credit score that’s considered a good score ranges from 670 to 739.
Here are some of the factors that determine your credit score:
- Your payment history: This is the most important consideration! Repaying your loans and making your credit card payments on time is the best way to build your credit score. Every time you miss a payment or make a late payment has a negative impact on your credit score.
- How much you owe: A high credit balance (meaning you are using a big portion of your credit) can lower your credit score. It’s best to keep your balance as low as you can. (But keep in mind that using your credit regularly is also good for your score!)
- How long you’ve been using credit: The longer you’ve been using credit, the better your potential score – as long as your repayment history is good.
- How many types of credit you have: Do you have a credit card (or cards), a mortgage or consumer loans? A mix of credit accounts can actually be beneficial to your credit score (as long as you’re repaying them on time!)
New credit accounts you’ve recently opened: It’s best not to open several new credit accounts at once, as that can be seen as risky and have a negative impact on your credit score.
If you have one or more credit accounts, then you have a credit score, and you can request a credit report to find out what it is.
But a word of caution: many service providers charge you to view your credit score reports, so it’s best to find one (like Fortuna) that offers free credit score viewing with your account.
Your debt levels can affect your credit score
Having debt can affect your credit score, but it depends on what kind of debt it is – and how it gets reported to the credit bureaus.
Can medical debt affect your credit score?
Medical debt won’t typically affect your credit score, because it’s generally not reported to the credit bureaus unless it goes to collections and remains unpaid for over a year.
Can student loans affect your credit score?
Student loans do affect your credit score, the same way a car loan, personal loan or mortgage would affect it.
Easy ways to check and build your credit score
Getting access to credit – or to lower interest rate loans – when you need them can mean the difference between qualifying for a new rental home, getting approved for a mortgage, being able to lease a car or opening a new credit card.
So it’s important to find out your credit score, and work to boost it if needed. Here’s how.
1. First, check your credit score regularly. You can do that here through your Fortuna All-in-One account and our partners at TransUnion. You should monitor your score annually at the very least, to ensure it reflects your current loans and payments. (This can also be important to protect against credit fraud).
2. Build a better score. If your credit score isn’t where you want it to be, it’s time to get to work. Here are some tips for building a better credit score:
- Always make your payments on time
- Be conscious of how much credit you use (and keep it as low as you can)
- Don’t open multiple new credit accounts at once
- Keep your old credit accounts – even if you’re not really using them
Remember, it’s not bad to have debt. In fact, managing your debt effectively is a good way to build your credit over time. But if you’re trying to repair a low credit score, the best thing to do is to make your debt payments steadily and consistently.
Learn more about credit scores and how to build your credit health.
