By Ryann Collins, Consumer Lending Manager
It’s easy to get swept up in the holiday shopping rush. If you went over budget, made pricey impulse buys or opened new credit card accounts, your credit score might take a hit.
Your credit score can lower when:
- You miss a payment
- Your credit card balances increase
- You max out a credit card
- You open new credit cards or loans
- You’re using more than 30% of your available credit limit
That’s because your credit score is calculated on your:
- Payment history
- Amounts owed
- Ratio of debt to available credit
- Length of credit history
- Types of credit (e.g. mix of credit cards and loans)
- New credit
How much each factor impacts your credit score varies. But the best thing you can do for your credit score is to pay your bills on time.
Why does your credit score matter?
Credit scores are three-digit numbers that generally fall into these ranges:
- Excellent: 720-850
- Good: 690-719
- Fair: 630-689
- Poor: 300-629
Lenders look at your credit score to determine how likely you are to repay them. The higher your credit score, the lower risk you are in creditors’ eyes. As a result, you can get offered lower interest rates and access to more credit.
If you have a high credit score, you’ll pay less in the long run for your credit card purchases, car and home than someone with a low credit score.
Real-world credit score comparison
Here’s an example of two neighbors with different credit scores. “Joe” has a high credit score while “Tom” has a low credit score. Both apply for a car loan for $20,000 at a 60-month term.
APR* offered: 3.00%
APR* offered: 5.50%
Monthly payment: $442
Monthly payment: $465
Total paid over the life of the loan: $21,248
Total paid over the life of the loan: $22,326
As you can see, Joe’s monthly payment is $23 lower and he will keep nearly $1,100 more in his pocket by having a better score – clearly demonstrating the value in maintaining your credit score.
Credit scores affect more than your interest rates
Utility companies, cell phone companies and landlords may look at your credit score. If you have a high credit score, you may pay lower utility deposits, get better cell phone plans and get the edge on renting that apartment with a view.
How to check your credit score
If you’re not sure what your credit score is, it’s a good idea to check. You can check your own score a few times each year. Just use the same tool each time you check. You can use online tools such as nerdwallet, Credit Karma and freecreditscore.com.
Learn more about your credit score and how to boost it
Visit your local Cinfed branch or take our quick online course to learn more about your credit score. You can also find tips for boosting your credit score.
*APR = Annual Percentage Rate is based on credit history, vehicle year and term of loan. Subject to credit approval. Examples provided are for illustration only.