Understanding and Improving Your Credit Score: A Comprehensive Guide

Financial stress is real, and an unhealthy credit score-one that designates you as a credit risk-can add to your stress. On the flip side, a FICO study found that 85% of U.S. consumers feel more secure in the rest of their lives when their credit score is healthy.

After all, a good credit score can unlock a multitude of financial opportunities. It could boost your chances of not only qualifying for a loan, but also receiving a lower interest rate and better terms. You could also gain access to lower rates and higher credit limits on credit cards. Other benefits could include lower insurance rates and, if you rent, smaller required deposits.

Fortunately, there are a number of steps you can take to improve your credit score if it's not where you want it to be.

Fortunately, there are a number of steps you can take to improve your credit score if it's not where you want it to be.

First things first: Check your credit score

So where can you check your credit score for free? Your credit card company, bank or other lenders may provide it. Other companies may, too, include free credit monitoring services.

You should check your score at least once a year, but more frequently is even better.

Now, although the common lingo is to refer to one's "credit score," you actually have many credit scores. One reason is because scores are formulated using data that credit bureaus like Equifax, Experian and TransUnion collect about your payment history and debts. Their credit reports may not all contain the same information, however. In addition, credit-scoring companies use different scoring models.

Review your credit reports

Since your credit score is based on your credit reports, you should check those as well. You can access free weekly online credit reports from the three major credit bureaus by visiting AnnualCreditReport.com .

Look for errors that could bring down your score. If you find mistakes, dispute them with the credit bureaus.

Also keep an eye out for potential instances of fraud, like if there are open accounts you don't recognize. Share concerns about fraud to the credit bureaus and the lender. You can help prevent someone from opening accounts in your name by putting a credit freeze or fraud alert on your credit reports.

Stay well below your credit limit

Just because you've been extended a certain amount of credit on your credit cards doesn't mean you should access it all. Try to use less than 30% of your available credit on each of your cards and other lines of credit. In addition, pay off the full balance of your credit cards each month if you can.

Also, though it may seem counterintuitive, consider opening a new credit card to gain more available credit. Think of it as a way to improve the ratio of money you're borrowing versus the total amount of money you could be borrowing.

Keep the balance low on this card as well, and be aware that applying for a credit card can lead to a temporary drop in your credit score.Keep the balance low on this card as well, and be aware that applying for a credit card can lead to a temporary drop in your credit score.

Build a positive credit history

You may be tempted to cancel a credit card that you've had for a long time but don't use very often. Before you do, consider that scoring models typically factor in the average age of your credit accounts. Canceling the card will both bring down the average age of your accounts and reduce your available credit.

Instead, use the card just enough to keep it active. (If the card has a high annual fee, it may nonetheless be financially beneficial to close it.)

Meanwhile, if you're just starting out with credit or have made credit missteps in the past, consider these options:

Demonstrate a mix of credit

Credit scoring models also typically consider the variety of your credit accounts. If you have only a loan in your credit history, for example, adding a credit card account can be advantageous. However, don't open several new credit cards in a short period. All those application requests could actually hurt your credit score.

As you can see, credit scores are based on a mix of factors that can be difficult to navigate. Speak with Valley's expert bankers to explore personalized strategies that can improve your credit scores and overall financial situation.

For informational/educational purposes only. The information in this content is not advice on legal, tax, investment, accounting, regulatory, technology or other matters. You should always consult your own financial, legal, tax, accounting or similar advisors before making any financial or investment decisions, or entering into any agreement for Valley products or services.

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