By Anna Davies | American Express Credit Intel Freelance Contributor
4 Min Read | May 11, 2020 in Credit
MyCredit Guide’s Score Simulator gives you feedback on how certain credit actions may affect your credit score.
Understanding what credit behavior affects your credit score can help you make healthy credit decisions.
Improving your credit score can help you earn better offers and approvals for lines of credit and loans.
Your credit score is an important number that plays a part of your daily life, from where you might live, which car you might drive, and what credit cards you may have in your wallet. That’s why it’s important to know your score. Credit scores are calculated monthly, so timely repayments and lower debt can lead to a higher score within a few months.
If you’re serious about improving your credit score—or making sure it doesn’t drop—it can be smart to come up with a strategy and assess “what if” scenarios. That’s where a credit score simulator calculator comes in: this tool helps simulate your credit score based on various financial actions you may take (such as debt repayment or opening a new credit line) that may affect your score.
MyCredit Guide, a free service offered by American Express for card members and non-card members, provides a free credit score simulator that can suggest actions to take to drive your score even higher.
A credit score simulator shows how various financial actions can affect your current credit score. Because it’s a simulation, actual results may vary, but you can use it to see:
For example, if you are planning on opening a new line of credit or applying for a loan, you can use the Simulator to understand how your application will affect your current score.
If your current credit score isn’t earning the approvals you need for new lines of credit or loans, the Simulator can suggest specific things you can do to drive your score higher.
In short, the credit score simulator answers your “what ifs” and provides realistic outcomes for various scenarios.
Your credit score is calculated by assessing various factors of your credit history. The VantageScore 3.0® by TransUnion® used in MyCredit Guide looks at five elements of your credit usage to create your score:1
1. Total credit usage, balance, and available credit: Extremely influential
Sometimes referred to as your credit utilization ratio, total credit usage looks at your current balances (what you owe) and your current credit limits (how much your credit companies and lenders allow you to borrow). Great credit scores typically use less than 30% of their available credit limits. To help maintain a healthy credit score, you can pay down debt, limit new expenses, and request increases to your current credit limits.
2. Available Lines of Credit: Highly influential
When lenders see that your credit history contains multiple lines of credit from different credit card companies and lenders, they can be more confident that you are a less risky borrower. For this reason, closing credit card accounts can actually harm your credit score, while opening new accounts can benefit your score.
3. Payment history: Moderately influential
A strong credit history of on-time payments increases your credit score. When debts are defaulted on or settled, your credit score will go down. Late payments of more than 30 days also are seen as negative payments on your credit report. To keep this factor in good standing, consider automating your monthly minimum payments to ensure you aren’t affected by any late payments.
4. Age of credit history: Less influential
Looking at the average age of your credit accounts helps lenders understand how long you have been able to manage credit in a healthy way. The longer you keep your accounts in good standing, the higher your credit score will be.
5. New accounts: Less influential
When you apply for a new loan or a new line of credit, you are signaling to borrowers a greater need for credit, which can be seen as risky when you are applying for multiple new accounts. While a single hard inquiry won’t hurt your credit score too much, a series of applications tell borrowers that you may be in a risky point in your credit journey.
A credit score simulator can’t improve your score, but it can help you explore how different financial decisions can change your score. You may be asking: would it be better for my credit score to trigger a balance transfer, to apply for a credit limit increase, or to apply for a personal loan to help pay off debts?
A credit score simulator can help you see the effects of these different options, allowing you to weigh different scenarios and choose which credit option works best for your circumstances—and your credit score.
Here’s why it’s smart to aim high when it comes to your credit score: The higher your score, the more competitive loan offers (including mortgage loans and car loans) will be—and the more access you’ll have to credit card offers and rewards.
An excellent credit score can help you access rewards and benefits that card members with low credit scores can’t be approved for. Used in conjunction with responsible credit card use, these reward and bonus programs can help you access travel opportunities, cash back rewards, and more.
A credit score simulator is just that—a simulation. The MyCredit Guide credit score simulator show you various outcomes taken from credit activities, but it can’t predict the exact credit score once those actions are taken.
That’s because many factors are at play such as your total credit usage, available lines of credit, payment history, credit history and new accounts. That said, a credit score simulator can be a way to test your financial decisions and can help you come up with a smart strategy to maintain or improve your credit score.