GRAND RAPIDS, Mich. — Your credit score plays a crucial role in your financial identity, affecting everything from major purchases to loan approvals and even rental applications. As we wrap up our series on getting financially fit, understanding what impacts your credit score can help you take control of your financial future.
A low credit score can prevent you from making large purchases, securing crucial loans, or even renting a home. But what causes your credit score to drop in the first place?
The two biggest factors are missed payments and running up large credit card balances. Managing your credit utilization ratio is key to maintaining a healthy score.
"So if I have a $10,000 credit card and I'm using $1,000 we get a low usage ratio. So ideally, I want to have a low usage ratio. Want to make my payments on time and I don't want to have too much credit open that also can hurt us," David with Mattson Financial Services said.
Another surprising factor that could hurt your score is the number of loans you apply for. Each credit inquiry can impact your score.
"So if I go and inquire on a credit card and inquire on an auto loan and then a mortgage, they're checking that credit, and that's going to help hurt that score a little bit," David said.
However, there may be some wiggle room if you've missed a payment. David suggests picking up your phone and calling your credit card company.
"If we do miss a payment, maybe you can call and ask for some forgiveness and say, Hey, I'm sorry. Things happen. Can we eliminate this missed payment, and talk to the credit card company and see if they can work with you," David said.
Even interest rates aren't locked in stone. It might be worth trying to negotiate a lower interest rate on a credit card to pay down debt faster.
Another piece of advice involves keeping existing credit cards open, but only if you won't be tempted to rack up more debt.
"So some folks have had a credit card for 10, 15 years. I say, hey, let's leave that credit card open to keep a good credit score going for us," David said.
A goal credit score should be in the high 600s and low 700s to be attractive to lenders and borrowers. These small, simple steps can help you improve your credit score in just a matter of months if you stay vigilant.
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