Your credit score is a measure of your creditworthiness.
Credit scores are used by creditors as a barometer for whether they will loan you money. The higher your credit score the more likely you are to repay a loan.
There are five main things that affect your credit score:
- Your payment history
- Different types of credit you have
- The total amount of debt you have
- How much new credit do you have
- Your credit history
Creditors report your account information to Equifax, Experian, and or Trans-Union.
These are the 3 different credit bureaus that compile your information to create your credit score. This is known as your FICO score.
The single best thing you can do to affect your credit score is to pay your bills on time. Any late payments will lower your score.
The longer they are late the lower you score will become. Keeping your payments under 30 days late is the key.
Did you know that when you open a new account it will lower your score for 6-12 months? Do not open new credit unless you really need it.
If you are at the mall and people are offering you a free toaster for opening a credit account with them just say “no” and keep on walking.
You want to keep your amount of debt to 30% of your credit limits. This is a number that creditors use to determine how you manage your credit.
When you pay your bills each month and how much you charge and when can affect your credit score.
Even paying off the balance each month in full can put you over the 30% amount of debt threshold.
You may want to get your credit limits raised and try to not use more than the 30% credit line available to you.
If you have credit cards that you do not use you should still keep them. You may want to use them twice a year and then immediately pay off the balance.
You never want to experience any of your accounts going to a collector or being charged off as a bad debt.
This will dramatically lower your score. Try and work out any disputes before it ever gets to that point.
The longer your accounts have been open and active the better your score. Accounts not used every 6 months are considered inactive so use them and then pay them off when your statement comes due.
These are a few ideas on how you can improve your credit score and better manage your credit. Credit is a privilege that provides many benefits when you use it correctly.