Oct 27, 2017

Most people don’t sit around and worry about their credit score. After all, there are so many other things they need to be concerned with in their lives. However, did you know that your credit score can impact all areas of your life – personal and business wise? 

It can influence whether or not a bank will approve you for a personal loan or credit card. It’ll influence credit providers in how much interest rate they charge on your loans. It will affect your application into a rental unit. Yes, it may even affect your ability to get and stay married. 

Therefore, it really is no surprise that people who have the highest credit scores tend to have the best rewards credit card providers can give.

Since this three-digit number – 300 to 850 – can have a heavy impact on your life, it’s imperative you do what you can to keep that number as high as you can. There are five things that will affect your credit score:

·      Payment History

·      Debt Amount

·      Length of Credit History

·      Credit Inquiries

·      Different Forms Of Credit

A Closer Look At The Five Factors Of A Credit Score: How You Can Maintain A Higher Credit Score Rating

Payment History (35 percent)

Your payment history contributes to 35 percent of your score. Think back on how you pay your bills? Do you pay your debts on time, regardless of what kind of debt you have? Do you have a late payment of 30, 60 or 90 days past due? Do you have any foreclosures or bankruptcies in your file?

Your payment history is the easiest part of the score that you can improve. However, it’s going to take some time to do so you must be patient.  How can you improve your credit score?

Limit Days Late On Payments

If you see a derogatory mark on your credit report (generally the result of a late payment), you need to make sure things don’t go from bad to worse. If you miss one payment, and it goes 30 or 60 days late, it won’t affect your score too badly and will fall off within two years.

If you’re more than 90 days late on a payment, however, this will stay on your report up to seven years. That’s a long time.  One 90-day late payment can be as bad as filing for bankruptcy. Make sure you pay your bills on time all the time.

And, if you can’t make sure you don’t go longer than 60 days.

File A Dispute

Filing for a dispute isn’t easy, but you can do it with any of the credit bureaus through their website if you notice there is an error in the report. Most errors will be removed without much hassle, but it’s not always easy to get the bureaus to alter the record.

Debt Amount (30 percent)

FICO notes that 30 percent of your credit score is affected by how much debt you have. Sure, it seems pretty self-explanatory, and there are some tricks you can use to increase your credit score.

Get Plenty Of Credit

Attain as much credit as you possibly can. How come? The credit bureaus will calculate your debt level against the percentage of overall credit limit. For instance, if you have a $16,000 credit limit and are using $315 of that amount, the credit bureaus deem you are using two percent of your credit limit.

Credit bureaus want to see a wide margin from your balance to your limit. The lower the percentage, the better. And, a great way to do this is to increase your credit limit. Ask your credit card provider to boost your limit. You can also attain another credit card (ones without any annual fees) to double the limit. There’s no need to change your spending habits with this method.

Use Your Credit Lines

You want to get out of debt, but did you know that having debt and not using it is a bad thing.  Why? It helps to create the history of on-time payments. When you have a balance you pay off on a monthly basis, you’re proving to lenders that you can and want to pay your debts back. It’s always a good idea to pay off the credit cards each month to avoid those pesky interest charges that credit card companies impose.

Did you know that the average American has close to $5,000 in credit card debt? This translates to hundreds of dollars a year in interest charges. 

Length of Credit History (15 percent)

There are two parts to the credit history that will affect your credit score: age of the oldest account and the average age of all accounts. Your score is higher when your credit history is older.

Attain Credit Early

A lot of people see credit cards as a bad thing, but this can end up hurting you in the long run. Credit bureaus can take up to seven years before they start the score, so getting credit as early as you can is a necessity. You don’t even have to use the card, but go for ones that offer a low-limit credit card with no fee. The additional years you have on you credit file has the potential to save you thousands of dollars later on when you need a mortgage. If you’re a college student, there are many credit cards that you can use.

Add Your Name To Another Person’s Credit Card

This option tends to involve a family member, and should be used on a credit card they’ve had for a number of years. It can help in building up your credit age. You don’t even need to use the credit card; just being registered on their account can establish your credit history.

Avoiding Closing Old Accounts Out

It’s tempting, once you’ve paid off a credit card debt, to close the account out. Don’t do this! If it’s your oldest credit card account, it could end up having a negative impact on your score. If you want to close newer accounts, go ahead. It’s your older accounts that will make the most impact on your credit score.

Credit Inquiries (10 percent)

Although credit inquiries account for 10 percent of your credit score, credit bureaus will look at the information to see how much credit you’ve recently applied for. If you apply for a lot of credit at one time, your credit score is going to drop significantly. There are two forms of credit inquiries: hard and soft. You should really understand the difference between both of them to understand why your credit score is moving the way it is.

Hard Inquiries

Hard inquiries are the result of when a company looks at your credit report when you apply for credit – think credit cards, auto loans, mortgages, etc. The impact from these inquiries is small and roll off within two years. Bureaus tend to view negatively at reports that have multiple inquiries at one time. To them, you may have problems getting cash. An inquiry now and then isn’t a bad thing.

Soft Inquiries

This kind of inquiry is passive and tends to happen when you don’t know it. For instance, looking for your credit score online or a job doing a background check, etc. Soft inquiries don’t generally, if at all, affect your credit score.

Focus more on limiting the number of hard inquiries you have.

Different Forms of Credit (10 percent)

Just 10 percent of your credit score is linked to the various types of credit you have. Credit bureaus look at the kinds of credit you have in your portfolio along with the number of accounts you’ve got.

Spread Your Credit Portfolio Out

Most people have a credit card and maybe an auto or student loan. You can also get a mortgage loan, which is issued when you purchase a house, or you can get a personal loan.  It seems counterintuitive to have the various forms of credit out there. But, you gain points when you have a well-rounded debt portfolio, as it shows that you can pay them back.

There’s no heavy influence on your credit score from having different types of credit. You also don’t want to take advantage of the system by forcing the different types. 

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