LOS ANGELES – October 5, 2021 – (Newswire.com)
iQuanti: Your credit score is an important number that can help you determine if you qualify for loans and credit cards. Having a high credit score means you’re more likely to get lower interest rates and better loan terms. If your credit rating is bad or fair, you may be wondering how to improve it. Let’s dive deeper into the 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 all of the on-time, late, and missed payments you have made. FICO, the most commonly used credit scoring system, ranks payment history at 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 and missed payments on loans and credit cards can negatively affect your credit score.
Try to make regular payments on time to help your credit score gradually increase. Two ways to ensure timely payments are to set up automatic payments and set reminders on your phone when your bills are due. Using one or both of these methods can ensure that you don’t miss any payments.
2. Amounts due
Amounts owed, or the amount of available credit you are using outside of your credit limits, is another big 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 car loans. Consistently reducing these balances each month can help your credit score increase.
It’s easy to overspend and find yourself in more debt than you really want. When using credit cards, try to keep your balances below 30% of your credit limit and pay off your balance in full each month if you can. This will help you maintain your credit score and eliminate interest payments.
3. Duration of credit history
The length of your credit history, or the average age of your accounts, is 15% of your FICO score. A longer credit history is viewed more favorably by lenders and can have a positive impact on your credit score.
Make sure you don’t close your oldest credit card, even if you don’t use it anymore. This will reduce the average age of your accounts and may lower your credit score. Occasionally make a few small purchases on this card to avoid account closure.
4. New credit
New credit, or the number of new accounts you’ve opened and the number of inquiries you’ve had recently, is a factor that makes up 10% of your credit score. Whenever you apply for a new loan or a new credit card, the lender may perform a “full investigation” that shows up on your credit report and may 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 preferable to many different cards with smaller limits.
5. Credit mixing
Your credit mix, or the different types of credit you have, makes up 10% of your credit score. Have a diverse range of credit, such as credit cards, car loans, mortgages, and installment loans, can have a positive effect on your credit score. Plus, lenders look for a healthy credit mix when deciding whether or not to approve you for a loan. You don’t have to go overboard with your credit composition, but you should try to maintain a good variety of accounts.
The bottom line
Maintaining a decent credit rating can be a key factor in financial security in life. Make your payments on time, reduce your credit usage, leave your oldest account open, avoid opening too many new accounts, and have a good mix of loans and credit cards. If you do all of these things consistently, you will see your credit score increase over time.
Note: The information provided in this article is provided for informational purposes only. Consult your financial advisor about your financial situation.
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5 credit score factors and how to improve them