Taking Control of Your Credit Score
Knowing how your financial decisions can impact your credit score can give you more control over your finances. This is critical if you’re in the market for a mortgage or other loan, but it’s always useful to know how to improve your score and make informed choices about your financial future.
No matter what your Glossary Term: credit score is, you can look for opportunities to improve it. Your score is generally calculated using five key factors from your credit report:
- Amount owed. This compares your available credit to the amount you currently owe. Glossary Term: Lenders generally like you to use no more than 20% of the credit available to you. But opening more cards just to increase your available credit limit may not be a good strategy. That could shorten your length of credit history, which can also affect your credit score (more on that below).
- Payment history. This part of the score measures how timely you’ve been about paying your debts. A history of paying off debts on time helps increase a lender’s confidence that you will pay your mortgage or other loan in the future.
Tip:Always paying your mortgage and other bills on time is one of the best ways to maintain healthy credit. If you are concerned about your ability to pay your existing home loan, talk to your lender. If you are a Bank of America Home Loans customer, see how we can help. And if you’d like to ensure timely payments, consider Bank of America’s automated Bill Pay service.
- Length of credit history. This takes into account the age of your oldest account, the average age of all your accounts, and the time since the last activity on each account. Opening a new credit card could shorten your average credit history while hanging on to an older credit card could show lenders a longer history of established credit.
- New credit accounts and inquiries. Every time you open a new account or apply for a new account an inquiry is created, which may negatively affect your score. Limiting the number of times you apply for a new account helps reduce inquiries and can help prevent your score from decreasing.
- Types of credit in use. On your credit report, it will list your credit cards, installment loans like car payments, mortgages, and other accounts. (If you are a Glossary Term: co-signer on any accounts, these accounts will also appear on your credit report.) Check your credit report for accuracy and immediately report any errors to the credit agency. Also, keep in mind that closing accounts or paying them off will not remove Glossary Term: delinquencies from your credit report.
Tip:Consulting with a credit counselor on your personal situation is a good method for learning how to improve your credit score.
Monitoring your credit
Now that you know the general factors that influence your credit score, you may want to monitor your credit report periodically.
- You can contact any of the three major credit reporting agencies—Equifax, Experian and TransUnion—to request your credit report and your score.
- You can visit annualcreditreport.com to get a free copy of your credit report, which reflects your account and payment history; however, you may have to pay to obtain a current FICO® score.
To learn more about how the interest rate you get is impacted by credit, read ”How credit affects your interest rate”.