Do you know your credit score? It's a number you should be paying attention to.
James Hilton, VP of Product Management at Mountain America Credit Union, joined us in studio to explain why.
He explained that credit scores help lenders evaluate their risk when loaning money to someone.
A higher credit score tells lenders you are more likely to make your payment on time as expected.
From their perspective that makes you a lower risk and they typically are able to offer lower rates or better terms than they could to someone with a lower credit score.
Lenders get their information about a person's payment history from three major credib bureaus: Equifax, Experian and TransUnion.
Hilton says, "When you borrow money -- say for a mortgage, auto loan or credit card – the lender will report your payments to the credit bureaus. It's important to know that not every type of payment you make will be reported, like utility and cell phone bills, but loan payments will."
The credit score is a mix of several factors, with the exact formula being determined by the scoring model being used.
Hilton explained there are two major models: The FICO model, which was created by the Fair Issac Corp. And the VantageScore model created by the credit bureaus themselves.
Each model also has different versions. That can add to confusion for people because you can have a different credit score depending on which model is being used.
That said, the basic components that the scoring models look at are on-time payment history, credit utilization, length of credit history, mix of credit and new credit.
Hilton says the biggest factor in all the credit models is that on-time payment history. Making full, on-time payments will help your credit score the most, while making late payments or missing them altogether will reduce your score.
The next most important is the total amount of debt you have compared to your overall borrowing power. For instance, if you have a credit card with a $1,000 limit and a balance of $1,000, that hurts your score because you're maxed out.
But if you have that same $1,000 balance and your card has a $10,000 limit, that can help your score because you're only using 10 percent of your available credit.
Mountain America recently launched a new tool called Credit Score Plus.
The tool shows your Experian VantageScore 3.0 and suggests which factors are most affecting your current score and what you could do to change it.
You can simulate things like what would happen to your score if you got a credit limit increase, or opened a new credit card, or stop making payments on a loan.
While this is only one version of your credit score, making similar changes should affect other score versions, as well.
There are other helpful benefits to Credit Score Plus as well. For instance, you can view credit alerts that can help you watch for fraud, errors or other activity that can affect your score.
The tool will show all your open accounts, along with the payment amounts and history, and show you a variety of information about all your borrowing.
You have to be a primary account holder with a Mountain America account to access Credit Score Plus for free through the mobile app or online banking.
To sign up as a member, head into a Mountain America branch or go to macu.com.
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