4 Need to Know Tips to Increase Your Credit Score and Build Financial Security

Why establishing a high credit score matters

When evaluating your credit score, it’s important to start with a baseline understanding of what credit is and how your score is calculated.

Credit is an agreement between a borrower and a financial institution, where the borrower receives a sum of money and in turn agrees to repay the amount borrowed, often with interest. The most common examples are credit cards, such as those issued by retailers, or loans, such as those for your vehicle, home or other.

When you take out a loan or make purchases on credit, credit reporting bureaus or those organizations tasked with monitoring your credit levels, credit usage and payment history, assign you a score.

Lenders will use the assigned score to assess a prospective borrower on two main criteria:

• Creditworthiness: How suitable you are considered to receive financial credit from their institution.
• Likelihood of repayment: How trustworthy you are based on your payment history and whether you will repay your debt on the credit you are seeking.

Your credit score can also impact several key areas of your financial life including:

• Interest rates: A higher score can often qualify you for lower interest rates on loans and credit cards.
• Credit limits: The higher your score, the more likely lenders are to offer higher credit limits which can help with financial growth or plan for unexpected expenses.
• Loan approval or denial: Your credit score can often impact whether or not you are eligible for a loan.
• Insurance premiums: Occasionally, insurance companies will offer auto and homeowners’ insurance at lower rates for individuals with a high credit score.

Your credit score can also impact your life in a few other areas that aren’t directly linked to borrowing funds.

For example, in certain industries such as law enforcement, accounting and financial planning and the military, employers may review an applicant’s credit history as part of the hiring process.

Additionally, when renting a home to new tenants, a landlord or property management company may also check credit scores to determine that an applicant demonstrates financial responsibility and an ability to make payments each month.

For these reasons and more, it is important to understand how to increase your credit score and ensure your credit score remains high. In doing this, you can make sure you’re able to benefit from the financial advantages that come along with having a high credit score.

4 important ways to increase your credit score

Individuals with a high credit score benefit from greater financial stability in terms of access to credit, lower interest rates and insurance premiums and other financial opportunities.

Because of this, it’s critical to understand how you can increase your credit score and make sure that you are in the best financial position possible.

Below are just a handful of the many tips for building your credit score and establishing best practices that will lead to greater financial stability in the long run.

1. Assess your starting point and take action when needed

Understanding what your current credit score is and what actions you may need to make to improve it is an important first step.

Often times, your banking institution is a great place to start, as some financial institutions provide customers with their credit scores at no extra charge. For example, at Associated Bank, we have partnered with Experian® to offer credit scores for free anytime you need to check with no impact on your score.

Once you know your score and would like to learn more about what may be impacting it, reviewing your credit report or making use of various credit monitoring tools are both great next steps.

For example, credit usage above 30% can negatively impact your score, so being able to determine how much of your credit you’re currently putting to work can be helpful in understanding your current financial health.

By federal law, you can get a free copy of your credit report from each of the three credit bureaus (TransUnion, Equifax and Experian) once every 12 months.

You can request this free copy at annualcreditreport.com and review it for any potential issues that may be negatively impacting your score, such as an especially high credit usage.

2. Set up payment reminders to pay your bills on time

One of the main criteria lenders will look at when considering giving you a loan, is the likelihood of repayment from you as a borrower.

Therefore, one of the more important steps you can take in improving your financial health is to ensure you are making payments on time.  One way to do this is to consider setting up automatic payments to send scheduled payments at the same time each month and avoid missing a payment or having your account sent to collections.

If you do have a prolonged outstanding balance on any account and it is sent to collections, you can always call the creditor or collection agency to request a goodwill deletion. There is no guarantee that your request will be granted but it is always worth checking.

3. Manage your accounts wisely and use your credit responsibly

Just as it is important to pay your bills on time, it is also important to only borrow what you need and use good judgement when applying for our taking out credit.

When seeking a loan for something like a car, for example, consider your entire financial picture. You may qualify for a $40,000 loan; however, if you have funds available to offset a portion of your purchase this may be the best option, rather than taking on a higher than necessary loan amount.

How many sources of credit you accumulate will also impact your credit score and credit utilization rate (or the percentage of available credit that you are currently using).

Keeping your credit utilization below 30% among all of your credit sources is a best practice most financial experts will suggest. Put another way, if you have $20,000 in available credit, keeping your balances below $6,000 is ideal.

4. Maintain the right balance and sources of credit

When looking at your credit score, there are five key factors that contribute to the overall health of your credit score:

• Payment history or maintaining regular payments
• Total amount owed or the amount owned across all credit accounts
• Length of credit history or the average of your accounts from oldest to most recent
• Your credit mix or types of credit in use such as loans, a home mortgage, etc.
• New credit or opening too many new lines of credit in a short period of time

Keeping an eye on the number of accounts you have will be important to note across all five categories. While there is no magic number of accounts to have, some credit bureaus suggest two to five credit cards as a benchmark if aiming for a good credit score.

In addition to credit cards, creditors like to monitor your behavior with different types of credit. These other types may include student loans, car loans or house mortgages. By having a diverse credit mix, you further demonstrate your financial responsibility to possible lenders.

Take action to improve your credit score

Increasing your credit score and building financial security is a critical process that will take time but is worth the effort. The steps covered above will set you on the right path and provide you with a baseline that will help you well into the future.

At Associated Bank, we offer a variety of solutions for keeping track of your credit score, gaining a clear picture of your spending habits and building financial practices that last, allowing you to make informed financial decisions.

If you have any questions about credit scores and how they impact your ability to get a loan or other form of credit, please give us a call at 800-236-8866, or schedule an appointment at any of our Associated Bank locations.

We’d be happy to help you understand all you need to know about credit scores and ways to improve your financial situation.