Your credit score might not be on your mind all the time, but it can seriously affect you in ways you may not realize. Your score plays a role in determining if you are accepted for mortgages, and it determines what rate you pay for insurance and interest. It can even play a part in how potential employers look at you as a job applicant. Those people who have the best credit scores enjoy a lot of benefits that other people miss out on.
This little number has an incredible impact on your life, and that’s why you need to do what you can to make it shine. Here are some tips to get your credit score moving in the right direction.
Your Payment History
Accounting for 35% of your credit score is your payment history. This includes how you pay your bills and whether you pay them on time. Paying late on anything can hurt your score significantly. There are different score penalties at 30 days late, 60 and 90. If you have a foreclosure or a bankruptcy on your report, that can drive your score down much further. You can improve this part of your score quite simply, however. It’s going to take some time, but follow these tested tips for success.
- If you have paid late and have a black mark on your record, then you need to pay up immediately. Once you start paying regularly on time, those black marks will disappear after a while. For anything you pay 90 days or more late, it can stay on your record for seven years. If you pay that late for something, it can hurt your score in the same way a bankruptcy filing would. Just pay your bills on time and you should be okay. If that’s not quite possible, then keep your delays below the 90-day mark.
- You may be able to get a black mark taken off your report. If it is an error, then you can dispute it with the credit bureau that reported it, as well as with your creditor. It’s much harder to get rid of errors that you actually made, but it can be worth talking to your creditor about having them removed.
How Much You Owe
Coming in second in regards to its impact, is the amount of debt you have. It may seem obvious how to deal with this part of your credit score, but we have a few tips that you may not have considered.
- Open up some more credit cards or increase your credit limit. This increases your available credit and helps your score. Your credit utilization ratio, or the percentage of credit you are using compared to how much you have, should be at about 30%. If yours is almost there, you can ask for a credit limit increase to get it where it needs to be without paying anything. The lower that percentage is the better it will be for your credit score. You can help out that percentage by opening up a new credit card, but you do need to be careful about opening a lot of cards at once or just opening a card for this purpose alone. You should only open low risk credit cards that will actually prove useful to you.
- You also want to try to use the credit you have. You don’t need to make big purchases, but keeping your accounts active helps to keep them in good standing and ensures they won’t be closed. It also makes them appear regularly on your credit report, and if you pay them on time, that can help your score a lot. You do want to try to pay off your credit cards in full every month. The lower you get that credit card debt, the more money you will save in interest payments.
Credit Account Age
This part of your score accounts for 15% of the overall score. It takes into account the age of your oldest open account as well as the average age between all your open accounts. If your credit age is quite old, your score here should be quite high.
- Try to get credit as early in life as you can. You can get a credit card as soon as you are 17 or 18, and so long as you manage your money wisely, it can help your credit score. A credit card does not have to be seen as a bad thing. You should try to get a credit card that has no annual fee and low interest rates. College students will be able to access cards that are specially designed for them, which can give them more options than other people might have.
- Keep those older accounts open and active. If you close out a credit card account after it has been paid off, you will lower your average account age, if it is an older account. You can close out newer accounts, but make sure those old ones stay open.
- You can also add yourself to someone else’s card. You will need to find a friend or family member who trusts you and ask them to add you to their account. This can allow you to build up your credit history on their account and with their card benefits. You can benefit even if you don’t use the account at all.
The bureaus that record your credit history also look at how many credit inquiries you make over a space of time. If you are constantly making credit inquiries and trying to apply for new lines of credit, this appears as a red flag to lenders.
- If a hard inquiry has been made, then it can hurt your credit score for a while. This occurs when your score is being checked by someone who is trying to approve you for credit. It occurs anytime you apply for a mortgage or a credit card, and it’s unavoidable. The impact will go away after two years, but if you apply for lots of these over time, it can look like you are desperate for credit and not handling your finances very well.
- Soft inquiries often occur at times when you may not even realize it. If someone is performing a background check on you or you are searching your own credit score, then your score will only take a short, temporary dip. You don’t have to worry too much about these hurting your score.
Mix of Credit Types
This only accounts for a small percentage of your credit score, but that doesn’t mean you should ignore it. It includes all the different types of credit you have available to you and that you are using.
- You can diversify your credit types with a mortgage, credit card, auto loan and student loan. You shouldn’t go out of your way to accumulate these forms of debt, obviously, but you should know that they aren’t all bad. If you can manage to pay them off on time, then it looks good on your report that you have a variety of credit types.
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