Improving Your Credit Score

Maintaining a good credit score may mean the difference between being able to borrow money for important purchases and not being able to borrow money at all.

For lenders, your credit score is an indicator of how responsible you are and how likely you are to pay back a loan. A higher credit score will likely get you a better rate on your loan, while a low score could come with a higher rate. That difference could add up to tens of thousands of dollars over the course of a lifetime.

Factors that go Into Your Score

Before working to build your score, you should understand how it is calculated. There are five factors that make up your score.

1. Payment History (35%)
   Do you make your payments on time, every time? If so, you’re in good shape. Late payments or unpaid balances will negatively impact your score for up to 7 years. 
2. Total Amount Owed (30%)
   How big is your balance versus how much credit you’ve been extended? The wider the gap between the two, the better.
3. Length of Credit History (15%)
   If you’re just starting out with credit, this can be tough. Consider length of time open before deciding to close any accounts you have. A card you’ve had open for years can do wonders for your score.
4. Accumulation of New Credit (10%)
   Do you open new credit accounts often? Are you upping your limits? This could be a red flag to credit agencies. The more you have been "shopping" for credit, the lower your score may drop.
5. Credit Mix (10%)
   A credit “mix” is the different types of debt you might have. Installment loans such as auto loans, mortgage loans, home equity loans or closed-end debt consolidation loans can raise your score. Revolving loans can lower a score. Revolving loans include credit cards or other open-end lines of credit.

Here are Some Steps You Can Take to Build, Improve or Maintain Your Score

Know Your FICO Score
Your FICO score is the number lenders look at when determining whether to extend credit to you, and what rate to charge. Credit scores range from 300 (lowest, bad credit) to 850 (highest, excellent credit). To qualify for a score, you need at least one account with six months of history, with one creditor reporting your activity to the credit bureaus.

You are able to request a copy of your report once a year, free of charge from annualcreditreport.com. Keep in mind that 20% of credit reports contain errors. These errors can negatively impact your score, so be sure to dispute them in a timely matter.

Keep Your Balances Low
One of the factors in determining your score, is how much you owe, versus how much credit was extended. The best way to keep this ratio low is to pay off your card every month. Note that this does not mean making the minimum payments. You will likely pay off your balance much quicker by paying more than the minimum payment.

When using your credit card, try not to use more than 30% of your total limit. Whatever balance you do put on, should be able to be paid off quickly.

Pay Your Bills on Time
You payment history is the biggest factor that goes into your credit score. Delinquent payments will negatively impact your score. Note that this isn’t just credit cards, but also bills for utilities, phones, subscription services, etc.

Setting up auto pay on these bills is a good way to ensure they’re paid on time. If it’s a Rivermark loan, you can set up recurring payments in Online Banking. For other vendors, you can use Bill Pay to set up automatic payments. If you can’t pay your bill or make a payment on time, take advantage of services such as Skip a Payment. 

Increase Your Credit Limit
If you can’t pay down your balances, try giving yourself space in the other direction. Ask your credit card issuer for a credit increase. Before doing this, make sure you are responsible enough to handle a higher credit limit.

Limit the Number of Credit Applications You Put Out
Each time you apply for credit, whether for credit cards or other types of loans, a “hard pull” will be taken on your credit. Too many of these “hard pulls” could negatively impact your credit score.

When it comes to credit cards, it’s a good idea to keep the cards you already have open. Because length of credit history is a factor, you’ll want to keep your oldest accounts open.

Try a Secured Credit Card
If you have little or no credit history, you may consider a secured credit card. The card is backed by an upfront deposit. Just like a regular credit card, you will need to make payments on time, and you will accrue interest on your purchases. Over time, you will qualify for a regular credit card. Rivermark offers a Secured Visa. If you're interested, you can apply online.