January 21, 2025

Understanding Credit Scores: Tips to Improve Yours This Year 

At Citizens First Bank, we believe in empowering our customers with the knowledge they need to make informed financial decisions. One of the most important factors affecting your financial health is your credit score. It influences everything from the interest rates on loans to the terms you’re offered when applying for a mortgage or car loan. But understanding what affects your score and how you can improve it may seem confusing. That’s why we’ve created this guide to help you better understand your credit score and provide you with actionable steps to improve it this year. 

What Impacts Your Credit Score? 

Your credit score is a three-digit number that represents your creditworthiness, and it can range from 300 to 850. A higher score indicates that you’re a lower-risk borrower, while a lower score suggests a higher risk to lenders. Your score is based on several factors, which we’ll break down for you below: 

• Payment History (35%): Your payment history makes up the largest portion of your credit score. Timely payments on credit cards, loans, and bills have a positive impact, while late payments, defaults, or bankruptcies can hurt your score. Staying on top of your payment due dates is crucial for maintaining or improving your score. 

• Credit Utilization (30%): Credit utilization refers to the percentage of available credit you’re using. The higher your credit utilization, the more it signals to lenders that you may be over-relying on credit. It’s recommended to keep your credit utilization below 30% of your total available credit to maintain a healthy score. 

• Length of Credit History (15%): A longer credit history can benefit your score. The longer you’ve had credit accounts open and in good standing, the more favorable it looks. If possible, avoid closing old accounts, as this can shorten your credit history and negatively affect your score. 

• Types of Credit in Use (10%): A mix of credit types, such as credit cards, mortgages, and auto loans, can positively affect your score. Lenders prefer to see that you can manage different types of credit responsibly, though it’s important to only open credit accounts you need and can manage. 

• New Credit (10%): Each time you apply for new credit, it results in a hard inquiry, which can cause a temporary dip in your score. If you’re looking to improve your score, it’s best to avoid opening new accounts in a short period of time. 

Tips to Improve Your Credit 

Now that you know the key factors that impact your credit score, here are some practical tips you can follow to improve your score this year: 

1. Pay Your Bills On Time 

Your payment history accounts for the largest portion of your score, making timely payments essential. Set up automatic payments for your bills to ensure they are always paid on time, or set up reminders if you prefer to handle them manually. Even one late payment can have a significant impact on your score, so stay on top of all financial obligations. 

2. Reduce Your Credit Utilization 

If you’re using more than 30% of your available credit, it can lower your score. Paying down high credit card balances is one of the quickest ways to improve your credit utilization ratio. If possible, consider requesting a credit limit increase, which can also lower your utilization ratio. 

3. Check Your Credit Report for Errors 

Mistakes on your credit report, such as incorrectly reported late payments or fraudulent accounts, can unfairly drag down your credit score. You are entitled to a credit report from each of the three major credit bureaus once a year. Take the time to review your report and dispute any errors you find. 

4. Avoid Opening New Credit Accounts 

When you apply for new credit, a hard inquiry is made, which can temporarily decrease your score. Unless it’s absolutely necessary, avoid applying for new credit while you’re working to improve your score. Each new application can also lower your average account age, which can negatively affect your score. 

5. Consider a Secured Credit Card 

If you’re new to credit or rebuilding your credit, a secured credit card can be a great tool. With a secured card, you deposit money as collateral, which becomes your credit limit. By using the card responsibly and paying your balance in full each month, you can demonstrate positive credit behavior and build your score. 

6. Become an Authorized User 

If you have a trusted family member or friend with a good credit history, consider asking them to add you as an authorized user on their credit card account. This allows you to benefit from their positive payment history, which can help improve your credit score. 

Why Does Your Credit Score Matter? 

Your credit score has a significant impact on your financial life. It affects your ability to secure loans for big purchases, such as buying a car or a home. A higher credit can also help you qualify for better interest rates, potentially saving you thousands of dollars in the long run. Beyond loans, your credit can influence your ability to rent an apartment, set up utilities, or even get certain jobs. 

How Citizens First Bank Can Help 

At Citizens First Bank, we are committed to helping our customers achieve their financial goals. We offer a variety of resources to help you understand and manage your credit, including credit score monitoring tools, personalized financial advice, and home loan options tailored to your unique situation. 

If you have questions about your score or need assistance in improving it, don’t hesitate to reach out to one of our financial experts. Together, we can create a plan to help you achieve a healthier credit score and unlock better financial opportunities in the year ahead. 

Improving your credit is a long-term effort, but with the right strategies and a commitment to responsible financial habits, it’s possible to make significant progress. Start by paying bills on time, reducing credit card debt, and regularly monitoring your credit report for errors. At Citizens First Bank, we are here to support you every step of the way as you work toward a stronger financial future. 

Citizens First Bank – Member FDIC 

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