Essential Guide to Understanding Your Credit Score

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If you’ve ever applied for a loan or even opened a bank account, you’ve probably heard the term “credit score.” This numerical value, which may seem vague and arbitrary to some, can make all the difference in your ability to access the funds you need. Whether you have great credit or you’re looking to raise your score, we can help. Let’s start by taking a deeper look at what we mean when we say, “credit score.”

What Is a Credit Score?

A credit score is a number that is assigned to consumers to represent their individual creditworthiness. Credit scores can range from 300 to 850. Financial institutions and lenders use them to help determine whether to do business with a potential borrower. They can also be used to help determine things like interest rates, credit limits, and more.

There are several different types of credit scoring models, but the most well-known is the FICO Score. You can view your FICO Score at no cost in the FSCU Digital Banking mobile app. This popular credit score looks at five different factors to determine your score, including:

  1. Payment history
  2. Credit utilization rate (how much credit you are using vs. how much is available)
  3. Credit history
  4. New credit/inquiries
  5. Credit mix

Here is how much each of these factors can influence your score:

35% Payment History
30% Credit Utilization
25% Credit History
10% New Inquiries
10% Credit Mix

Why Does My Credit Score Matter?

Anytime you need to borrow money for things like a home or car, your credit score will determine how much you can borrow, what your interest rate will be, and what terms you might be granted for your loan. Over time, a low credit score could end up costing you tens of thousands of dollars in added interest payments. Your credit score can dictate what type of mortgage you qualify for. Even if you are renting your home, credit scores still matter. Landlords will now run your credit as another test of trustworthiness and financial aptitude. Some potential employers consider credit scores when selecting job candidates.

What Is a Good Credit Score?

In 2019, the average American’s FICO score was 695. While this number is considered good, it still may not unlock the best loans or rates. FICO divides the different scores into the following five categories:

Poor: 300 – 579
Fair: 580 – 669
Good: 670 – 739
Very Good: 740 – 799
Exceptional: 800 – 850

Common Credit Score Myths

Understanding your credit score is one thing, but being able to tell fact from fiction can be a determining factor in where you live, what you drive, and even where you work. For many people, credit scores are wrapped in mystery. Because of this, there are some common misconceptions to watch out for. Here are ten truths about your credit score and what you can do to affect your rating – for better or worse.

1. Your Income Is Not a Factor in Determining Your Credit Score

Contrary to popular belief, your income is not a part of your credit report. Your income and earning potential can be factors that determine whether a lender will work with you, but they are not included in the calculation of your credit score. That means that getting a raise or a better job does not mean your credit score will go up. Other factors that are not included in your credit report include:

Marital status
Employment status
Race or ethnicity
Religious affiliation

2. Being Well Off Does Not Equal Having Good Credit

The correlation between a person’s wealth and credit score can be misleading. Remember, credit reporting companies look at a person’s credit history to determine how likely they are to pay back what they have borrowed. If a person is inherently wealthy and has never used credit to pay for anything, then they’re more likely to have a lower credit score regardless of their net worth.

3. Carrying a Credit Card Balance Doesn’t Boost Your Credit Score

Carrying a long-term balance on a credit card is not going to help your credit score. In fact, you’re probably going to be stuck making payments on interest each month. Using credit cards and revolving lines of credit responsibly by only purchasing what you can afford to pay off at the end of the month will still help you maintain a good credit score while avoiding interest payments. Likewise, if you carry a high balance on a card, usually over half your total card limit, you will end up hurting your score.


Be wary of credit cards with rewards programs. Those frequent flyer miles or hotel points may sound lucrative when you open your account, but check the fine print to see how much you’ll have to charge to your card to reach those levels. You may end up paying more in interest than you would have had you reached into your own pocket and treated yourself to the same rewards.

4. Credit Scores Matter for People of All Ages

Responsible credit habits should be taught and practiced from a young age. Even college-age students who use credit cards responsibly are laying the foundation for financial success. Young people can prime themselves for a secure financial future by establishing a positive credit history and learning financial discipline from the start.

5. Student Loans Can Hurt Your Credit Score

Student loans can mean significant debt, but they don’t necessarily have to hurt your credit score. Sure, there’s potential that they can skew your debt ratio negatively. However, they can also help you establish credit history, which can make a big difference in your credit score.

6. Closing Credit Cards Will Not Raise Your Credit Score

There may be good reasons to close a line of available credit, but raising your credit score is not one of them. Remember, in addition to credit history, your credit utilization ratio is another significant factor in determining the credit score that potential lenders consider when they evaluate you. Even if you aren’t carrying a balance, keeping your credit cards open could be a way to boost your credit score over time.


For the best result, don’t stop using your credit card entirely. Make smaller purchases on your card that you can pay off before the end of the billing cycle. This will allow you to show creditors that you use credit responsibly without having to pay interest on your charges.

7. Debt Is Not Always Good or Always Bad for Your Credit Score

Not all debt is created equal when it comes to your credit score. While it is true that some debts can help you build a history of responsible credit use, other types of debt could hurt your score. When credit agencies and even prospective lenders consider your creditworthiness, seeing these items in your credit history can work in your favor:

Home loans
Auto loans
Student loans

8. Checking Your Own Score Will Not Lower It

Checking your own credit score isn’t going to lower it. You are entitled to know where you stand, and you should check in regularly. However, any time a third-party checks your score, it may temporarily drop. The difference is whether a “soft” or “hard” inquiry is made, as only a hard inquiry will lower your score. Here are a few common examples of each:

Examples of a Soft Credit Inquiry:

Checking your own score
Getting a quote for auto insurance
Employment verifications
Background checks

Examples of a Hard Credit Inquiry:

Car loan application
Mortgage or home equity loan application
Credit card application
Student loan application

9. There Are Two Main Types of Credit Scores

In the U.S., there are three major consumer credit reporting bureaus: Experian, TransUnion, and Equifax. These three companies use two different types of scores to determine the numbers they report – FICO Score and VantageScore. Other organizations, such as major banks, may also have their own version of a credit score that they use for things like auto or home insurance.

10. Paying Off a Bad Debt Doesn’t Make it Disappear

Credit mistakes can stick with you for years to come. Just because you are able to pay off bad debts and even delinquent loans, for example, does not mean that those problematic items will drop off your credit history. There are certain protections afforded to consumers by the Fair Credit Reporting Act. How long specific infractions remain on your credit score may depend on several factors, including both state and federal laws.

How to Improve Your Credit Score

If your credit score is less than ideal, the good news is you can start now to improve it. Below are some tips to pay down your debt and increase your credit score.

Pay Off Debt
Close Long-Term Accounts
Use Automatic Bill Pay
Stop Using Credit
Check Your Credit Report
Use Over 30% of Your Credit Limit
Request Increases to Credit Limits

Refinance and Consolidate Debt

Transfer High-Interest Credit Card Balances

Pay Off as Much Debt as You Can

This may seem obvious, but it’s an important step toward improving your credit score. Spend some time reviewing your budget and determine if you have the ability to shift more of your money towards paying off debt. As your balances go down, your credit utilization ratio improves. This will quickly translate to improvement in your credit score.

Use Automatic Bill Pay to Prevent Missed Payments

Utilize the digital banking services provided by your bank or credit union to ensure that you are paying your bills on time. Set up automatic bank drafts or bill pay to eliminate the risk of simply forgetting to make your payments before the due date.

Check Your Credit Report

It’s important to know what’s in your credit report. In addition to knowing your overall score, we also recommend taking a deeper look at your credit report at least once a year to look for errors or problems that may negatively impact your score. If you do find any errors, report them immediately to the appropriate credit bureau.

Ask Your Creditors to Increase Your Available Credit

Remember, your credit utilization ratio accounts for 30% of your credit score. If you are managing your credit cards or revolving lines of credit effectively, you may be able to get creditors to increase your credit limit, which will help tilt your credit utilization in your favor.

Refinance and Consolidate Debt

High-interest loans can trap borrowers with costly monthly payments. Not only can they keep borrowers from getting out of debt, but can they can also get in the way of saving up or investing for the future. Luckily, you may have options.

If you have high-interest credit cards, for example, you may be able to use a personal loan to consolidate your debts into a single monthly payment that doesn’t cut quite as deeply into your budget. This is a great way to start digging out of a financial hole because it enables borrowers to pay less toward interest each month.

Another way to cut down on monthly expenses is to look into refinancing your mortgage or auto loan. This may change your loan’s terms, but it can be an effective way to free up your finances so you can pay off your debts more quickly.

Transfer Credit Card Balances to a Card with a Better Rate

High-interest credit cards are another common trap for first-time or inexperienced borrowers. Monthly interest can quickly compound and make it difficult to pay down the principal. Transferring your balance to a new card with a low interest rate can reduce monthly payments and help you pay off debt faster.


At First Service, our credit cards offer 0% introductory APR for six months, with rates from 7.99 – 18.00% APR after, depending on creditworthiness.1

What Not to Do

Don’t close long-term credit card accounts
Don’t stop using your credit, but make sure to exercise restraint
Don’t let your credit utilization go over 30% if at all possible


Taking Your First Step

Finding a reliable partner is crucial to reaching your financial goals. There are thousands of financial institutions out there, but not all are created equal. At First Service, our team of experienced financial professionals is committed to your success. Our mission is to provide financial products and services that enhance our members’ lives. If you’re serious about improving your financial situation, we are here to help.

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