UFCU SPONSORED CONTENT — Credit is an important tool that you can use to manage and improve your financial health. Use it wisely, because it directly impacts your credit score. We break down why your credit score is important and how you can take control.

So, what is a credit score?

Your credit score is a number that tells lenders how likely you are to repay them. The most common score used by lenders is a FICO® Score, which ranges from 300 to 850. The higher your score, the less risky it is to loan you money. Generally, a high score means you’ll have better loan terms and lower interest rates.

What do the numbers mean?

The FICO® Score range translates to these values:

  • Less than 580 = Poor
  • 580–669 = Fair
  • 670–739 = Good
  • 740–799 = Very Good
  • 800–850 = Exceptional

What goes into a credit score?

The good news is that you have control over how your credit is scored. Five ingredients make up the score, with some counting more than others:

  • Payment History, also called Paying on Time — 35% — This is the most important factor!
  • Amounts Owed — 30% — This refers to how much of your available credit is being used.
  • Length of Credit History — 15% — This includes the age of your oldest account and how long since you’ve used certain accounts.
  • New Credit — 10% —  Avoid opening several new accounts in a short amount of time.
  • Credit Mix — 10% — It’s good to have a diversity of debt types, such as credit cards, mortgage loans, and installment loans like car, student, and personal loans.

How do you improve a credit score?

Always pay your bills on time, every single time. Every time you miss a payment, even if it’s only one day, your credit score goes down. If you struggle with this,  try scheduling your payments to be automatically deducted from your checking account each month.

The second most important thing you can do to improve your score is to keep your balances low. It’s best practice to pay off your credit card balance in full each month to avoid being charged interest. If that’s not possible, keep your outstanding balance at less than 30 percent of your total limit. For example, a credit card with a $5,000 limit should have less than $1,500 owed. Carrying a balance over 30 percent will bring down your score.

A good credit score takes time to build and improve, so be patient. Remember that you have the power to control your credit score, and ultimately, your financial health.

If you’re looking for additional financial tips and tools to better plan, spend, save, and borrow, check out PlanU by UFCU. You’ll find options that range from talking with a financial health expert to creating a personalized resource center to meet your needs.