Understanding your credit score is easy
Good news! Understanding your credit score is pretty easy, and you can use this knowledge to fix your score and keep it healthy.
35 percent of your score is related to your payment history. If you haven’t had a consistent payment history up until now, don’t panic. Part of the repair process begins with reaching out to creditors and bureaus to permanently remove inaccurate, misleading and outdated information from your report.
If your payments aren’t up to date, stay current and stay up to date. Lenders will often work with you to set up a payment plan so you can stay on top of your payments. Making payments on time should be your number one priority. This is the easiest way to affect your credit score.
30 percent of your score is your credit utilization. Your loan utilization rate is extremely important and you want it to be under 30 percent. What does this mean? Here’s an example.
You have three credit cards. Each card has a limit of $1,000. Taking into account the lack of other open credit accounts, you have $3,000 in credit. $900 is 30 percent of your $3,000 available credit. At any one time, you must not charge more than $900 in total to the three accounts combined.
Add up your credit accounts, then add up how much you owe on those accounts. If it’s over 30 percent, pay off the balance as soon as you can. You will see an improvement in your credit score.
Bonus tip: Don’t let your credit card balance carry over from month to month. If you can’t afford to pay off a balance within a month, don’t spend the money unless it’s an absolute emergency. This will keep your credit utilization under 30 percent and immediately help your credit score.
15 percent of your score is the length of your credit history. How long have you been renting? If your credit history is well established, you are considered less risky than someone who has just started borrowing. You deserve more credit if you have successfully demonstrated that you can pay back the money you have borrowed
10 percent of your score is accounted for by new accounts and credit applications. A newer credit account is considered riskier than an older credit account because you haven’t built up a payment history. The same applies to a new credit request. If you want more credit, you need to borrow more cash on top of your monthly income – this tells lenders that you’re spending more than you’re making.
10 percent of your score is your credit mix. Having a good mix of credit is a good way to build good credit. A car loan, mortgage and credit card is a good combination of loans.
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