A surprising amount of people are unaware of the credit scoring system, let alone their own credit rating. But when they try to get credit to purchase a home or car, their credit score – or lack thereof – suddenly becomes a huge issue. 

What is a Credit Score?

In short, your credit score shows a lender how much of a liability you are as a borrower. 

Your credit score is a three-digit number that lenders use to assess your eligibility for loans and lines of credit, such as a mortgage, car loan, or credit card. This number directly affects the interest rate you pay on the loan or line of credit. 

The lower your credit score, the greater a risk you are to a lender. The higher the risk you are, the less likely you are to get a loan or line of credit – and if you do qualify for a loan, your interest rate is likely to be high. Even if you and your spouse are co-signers on a loan, both your credit scores will be scrutinized. That’s why it’s important to earn and build good credit. 

Why Your Credit Score Matters

It’s worth taking your credit score seriously, because it can affect your life both now and in the future in these ways:

• Your home: Even though you may not be ready to purchase your first home, a poor credit score can affect your ability to lease a house or apartment. This is because many U.S. landlords perform credit checks to assess potential tenants. This gives them a heads-up as to whether you are responsible enough to pay your rent on time. A poor credit score may mean you have to pay a higher deposit and additional advance rent. 
• Your utilities: Whether you are buying or renting, your home will still need water, electricity, and heat. However, if your credit status is weak, you will be perceived as a risk and will have to pay more for your utilities. Many gas, water, and electricity companies require a deposit for people with a low credit score to open an account with them. 
• Employment: Although you may not realize this, if you don’t have a healthy credit score, you may just miss out on that dream job you’ve been striving for. In most states, employers have the right to run credit checks on potential employees. Many employers feel that credit scores directly relate to an individual’s trustworthiness. 
• Insurance: There are two things that a low credit score says to an insurance company. One is that the individual is unreliable, and two, that they are more likely to file a claim than a person with a good credit score. This means that many people with a low credit score end up paying higher insurance premiums.

Issues That Can Decrease Your Credit Score

There are several key factors that can very quickly harm your credit score and should be avoided. These include:

• The amounts you owe: How deeply you are in debt reveals how well you can manage what you owe. If you have one or more high outstanding balances, then your credit score will go down. As a guideline, you should avoid borrowing above 30 percent of the limit on your card. When it comes to installment loans, paying it down regularly will be looked upon with favor, even though you may still owe most of the principal. 
• Payment history: This involves the information about how and when you pay back your debts. If you don’t pay on time, or you have a record of outstanding debts, foreclosures, bankruptcies, liens, suits, judgments, or wage garnishments, these will all hurt your credit rating. 
• Types of credit: Although you don’t have to have a varied mix of different types of credit, the ones you do have, and how you use them will affect your credit score. For example, using a credit card to purchase a motorcycle could cost you credit points.
• Length of credit history: How long you’ve used credit also makes a difference. The longer and more responsible your credit history is, the higher your score is likely to be. This is because lenders have an opportunity to see your credit record over time. 
• Recent or new credit: If you have recently made inquiries or applications for new lines of credit, this indicates that you may be about to increase your debt level. Acquiring more lines of credit in a short amount of time can hurt your credit score, particularly if you don’t have a long credit history.

How to Improve Your Credit Score 

So, what does a fair credit score look like and how can you kick it up a notch or two? The FICO credit score range – which is the one referred to by most lenders – spans from 300 to 850. Scores that fall between 580 and 669 are considered to be fair. Scores below 580 are considered to be poor, which scores above 669 are considered to be good, very good, or exceptional. If your credit score is in the good or higher range, you will be eligible for a wider range of credit options and lower interest rates. However, if you fall into the poor range, your options will be limited. 

You can improve your credit score by:

• Reducing your existing debt: Paying down your existing debt can boost your credit score in the short term by reducing your credit utilization ratio (CUR). This figure refers to the percentage of credit you are using from your total available revolving credit. If your CUR is low, it may help to increase your credit rating. 
• Make payments on time: Missed or late payments can harm your credit score— even just one missed payment is negative toward your credit report. Always pay on time to avoid penalties. Avoid paying too early. If you make a payment and it is added to your current statement, you may not notice, and this could make your next payment missed or late.
• Check your credit report for errors: It always worth a look. If you spot any mistakes, make sure that you report them immediately, otherwise, they could cause your credit score to plummet. Some websites offer a free credit report, but make sure you do some research to make sure they’re secured. 

How True Connect Can Help

Having a poor credit rating can have a big impact on someone who needs to borrow fast cash for an emergency such as:

• Unexpected medical bills
• Rent, mortgage, or car repayment
• House or car repairs
• Death of a loved one

TrueConnect offers a safe alternative for those who don’t have great credit scores, or have no credit score, and get caught in a financial jam – because there’s no credit score used for a TrueConnect loan. This prevents them from having to resort to predatory lenders. Employees can borrow from an FDIC insured federal bank and make easy repayments over the next twelve months through convenient payroll deduction.  All of the payments are reported to the credit agencies to help you establish a credit history or repair a damaged credit history. Eligible employers can offer their members of staff TrueConnect loans at no cost to themselves. 

If you want to get a better perspective on your current financial status, TrueConnect also offers a Complementary Financial Wellness Analysis. It’s good to know exactly what your credit score is. That way, if it’s low or non-existent, you can start working to build it today and benefit your financial wellbeing.