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Credit Scores: What You Need to Know

Credit Scores: What You Need to Know

When it comes to personal finances, your credit score is the single most important number you should know. It’s also important to know how to build and continually improve your credit score throughout your life.

"It's crucial for everyone to build and maintain a solid credit score because it's a figure that will effect job possibilities, loan approvals, and even the ability to rent an apartment," said Derek Kramer, Mortgage Loan Officer at BANK. "It's critical to make financial decisions that don't put you in a position where you're overextending yourself and jeopardizing your credit score."

Your ability and willingness to pay your payments on time is reflected in your credit score. Lenders will see you as a lower-risk borrower if you have a high credit score. This can lead to reduced interest rates on loans or approval for credit cards with better rewards levels. Even the cost of insurance premiums can be influenced by a credit score. In the end, a good credit score will save you money in the long run.

To calculate a credit score, FICO considers five basic elements. Some have a greater influence than others, but each factor is considered when determining a person's ability to repay a loan.

  • Payment history — Consistency in paying your bills on time is the most important factor in your credit score. Paying bills on time is the quickest way to increase your credit score.
  • How you use credit —Maxing out your credit cards or consistently carrying large balances will negatively impact your credit score.
  • Length of credit history — The more experience you have using credit responsibly will also positively impact your credit score.
  • Number of accounts or inquiries — Having more credit accounts in your history than your income may lower your credit score.
  • Credit mix —Credit cards can be valuable tools in building a credit score. If your entire credit history is made up of credit cards, however, your score won’t be as high as someone who has a mortgage loan, car loan and student loan in addition to credit cards.

Credit Ranges

Credit scores vary depending on the credit model used to measure your credit. Typically the ranges fall in the following categories:

  • Excellent credit: 750 or higher
  • Good credit: 700 to 749
  • Fair credit: 650 to 699
  • Poor credit: 600 to 649
  • Bad credit: Lower than 600

Tips for Improving Your Credit Score

Building and maintaining a high credit score requires organization and willpower to live within your means. Following are steps you can add to your daily routine that will help you improve your credit score.

  • Create a budget and stick to it.
  • Pay bills on time.
  • Maintain low credit card balances.

The better your credit score, the more easily you will be able to make purchases, such as a home, or even a new car. When you are ready to finance one of these things, visit us at

Tips provided by the Iowa Bankers Association.