Most people don’t think about their credit until the time when they want to make a large purchase like a car or a house. Unfortunately, many people are surprised to find that their credit score isn’t as good as they thought it was. A bad score may also affect your auto insurance rates. Do you know what you need to do to improve your score or what variables are used to calculate your score?
To improve your credit score, you need to identify areas need to be worked on or what account is causing a poor credit score.
• The amount of used revolving credit, including credit cards and store credit cards, are approximately 30% of your credit score. The debt to credit ratio is considered in calculating your score and a good credit score will have the ratio close to zero.
• 31% of your credit score is based on payment history. If you’re making your payments on time, you’ll be able to slowly build up a good credit score. Lenders want to see that you’re paying your accounts on time, to ensure they will be paid on time if they decide to extend you credit.
• The age of your credit accounts make up 15%. To increase credit score in this area, try to keep accounts open. Closing credit accounts can deduct points and having older accounts show lenders that you are committed and won’t run if something went south with the account. If you close some credit card accounts and put most or all of your credit card balances onto one card, it may hurt your credit score if this means that you are using a high percentage of your total credit limit.
• 14% of the credit score is calculated by types of accounts. Having a mix of different credit accounts, such as Open Real Estate Loans, Open Installment Loans, Open Credit Cards or Open Retail Cards, can show lenders if you’re good or bad with credit
• Lastly, hard credit inquiries account for 10% of your credit score. Even if you don’t get the credit card, inquiries show lenders that you are looking for more credit which means you may be spending above your income. Each inquiry stays on your account for about 25 months. Having more than four hard inquiries on your will deduct points and keep you from having a good credit score. Try to have no more than three inquiries on your account at a time. Five or more inquiries make you a high risk to lenders.
Being aware of these five areas used in the credit score calculation is very helpful in determining how to get that good credit score – it’s also a matter of being responsible with your spending habits. Having credit to your name is great, but don’t let that become a nightmare if you don’t manage it properly. The bottom line for getting a great score:
• Pay your bills on time, every time
• Don’t get close to your credit limit.
• Keep account balances low
• Take out new credit only when you need it
What tips have helped your score? Feel free to share your thoughts and experiences in the comments section below.