LOS ANGELES – October 5, 2021 – (Newswire.com)
iQuanti: Your credit score is an important number that can help determine if you qualify for loans and credit cards. Having a high credit score means that you are more likely to get lower interest rates and more favorable loan terms. If you have a low or fair credit rating, you may wonder how you can improve it. Let’s dive into 5 credit score factors and how you can improve each of them to increase your score.
1. Payment history
Payment history is the most important factor in your credit score and is determined by the timely, late, and late payments you have made. FICO, the most widely used credit scoring system, rates payment history as 35% of your overall credit score. If you make your payments on time, you will have a positive payment history and a good reputation with lenders and credit bureaus. On the other hand, any late or missed payments on loans and credit cards can negatively affect your credit score.
Try to make consistent, on-time payments to help your credit score gradually increase. Two ways to help ensure timely payments are by setting up automatic payments and creating reminders on your phone when your bills are due. Using one or both methods can ensure that a payment is not missed.
2. Amounts owed
Amounts owed, or the amount of available credit you are using outside of your credit limits, is another important factor that accounts for 30% of your credit score. It is calculated by determining how much you owe on accounts such as personal loans, credit cards, mortgages, and auto loans. Steadily reducing those balances each month can help your credit score rise.
It’s easy to overspend and end up with more debt than you really want. When using credit cards, try to keep your balances below 30% of your credit limit and pay your balance in full each month if you can. This will help keep your credit score high and eliminate interest payments.
3. Length of credit history
The length of your credit history, or the average age of your accounts, makes up 15% of your FICO score. Lenders view a longer credit history more favorably, and this can have a positive impact on your credit score.
Make sure you don’t close your older credit card, even if you no longer use it. This will lower the average age of your accounts and may lower your credit score. Make a few small purchases with this card from time to time to avoid account closure.
4. New credit
New credit, or the number of new accounts you’ve opened and the number of tough inquiries you’ve had recently, is a factor that accounts for 10% of your credit score. Every time you apply for a new loan or credit card, the lender can do a “rigorous investigation” that shows up on your credit report and can lower your credit score. You can avoid this by limiting the number of new accounts you open. Having one or two credit cards with a higher limit may be better than many different cards with lower limits.
5. Combination of credits
Your credit mix, or the different types of credit you have, make up 10% of your credit score. Have a wide range of credits, such as credit cards, auto loans, mortgages, and installment loans, it can have a positive effect on your credit score. Also, lenders look for a healthy credit mix when deciding whether or not to approve a loan. You don’t need to go overboard when it comes to your credit mix, but you should try to maintain a good variety of accounts.
The bottom line
Maintaining a decent credit score can be a key factor in financial security in life. Make your payments on time, keep your credit utilization low, leave your oldest account open, avoid opening too many new accounts, and have a healthy mix of loans and credit cards. If you do all of these things consistently, you will see your credit score increase over time.
Notice: The information provided in this article is for informational purposes only. Consult your financial advisor about your financial circumstances.
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5 credit score factors and how to improve them