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Understanding what impacts your credit

Learn what goes into your credit score so you can find ways to improve it.

Chapter 1: Impacts to your credit: Payments, balances and credit history

This part of the conversation defines credit and outlines the key components of a credit score.  The video and the Credit Myths: Discredited Guide give a good overview of how credit works, debunks credit myths and provides a few tips for credit success.

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Video Transcript

What is a credit score and how is it used?

Credit is essentially a measure of your financial responsibility. Your credit score is a measure of how you handle your finances and manage your credit. Before lenders decide to lend you money, they generally will check your credit score to determine how risky it is to lend you money. You can monitor your credit score as well.

Things that affect your credit score

Your credit score is made up of five key components:

  • Payment history (35%),
  • Credit utilization ratio (30%),
  • Length of credit history (15%),
  • Credit inquiries (10%), and
  • Credit mix (10%).

Credit scores range from 300-850. Higher credit scores are favorable to lenders.

A higher credit score is great, but if you have a lower score, it's not the end of the world. There are ways you can budget and make adjustments to improve your credit relatively quickly.

Key takeaways on credit

  • Bills: Pay those bills on time! Schedule payments online by linking your bank account to your credit card.
  • Credit utilization: Keep your credit utilization below 30% of total limits.
  • Credit history: Length of credit history counts. Don’t cancel credit cards you no longer use. Let the issuer decide when/if that happens.

Your chapter 1 checklist:

Next step

Watch the next chapter in the series: Credit truths

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. State Farm makes no guarantees of results from use of this information.




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