LOS ANGELES, October 5, 2021 (Newswire.com) - iQuanti: Your credit score is an important number that can help determine whether you qualify for loans and credit cards. Having a high credit score means you're more likely to get lower interest rates and more favorable loan terms. If you have a poor or fair credit score, you may be wondering how you can 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 of your credit score and is determined by any on-time, late, and missed payments you've made. FICO, the most commonly used credit scoring system, ranks payment history as 35% of your overall credit score. If you make your payments on time, you'll have a positive payment history and a good reputation with lenders and credit bureaus. On the flip side, any late and missed payments on loans and credit cards can affect your credit score negatively.
Try to make consistent on-time payments to help your credit score gradually increase. Two ways to help guarantee timely payments are by setting up automatic payments and creating reminders in your phone when your bills are due. Using one or both of these methods can ensure that you don't miss a payment.
2. Amounts owed
Amounts owed, or how much available credit you're using out of your credit limits, is another important factor that accounts for 30% of your credit score. It's calculated by determining how much you owe on accounts like personal loans, credit cards, mortgages, and auto loans. Consistently lowering those balances each month can help your credit score go up.
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 off in full each month if you can. This will help keep your credit score up 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. 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're no longer using it. This will decrease the average age of your accounts and can bring down your credit score. Make some small purchases on this card every once in a while to avoid account closure.
4. New Credit
New credit, or the number of new accounts you've opened and how many hard inquiries you've had recently, is a factor that accounts for 10% of your credit score. Each time you apply for a new loan or credit card, the lender may conduct a "hard inquiry" 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 can be better than many different cards with smaller limits.
5. Credit Mix
Your credit mix, or the different types of credit you have, makes up 10% of your credit score. Having a diverse range of credit, like credit cards, auto loans, mortgages, and personal installment loans, can have a positive effect on your credit score. Additionally, lenders look for a healthy credit mix when deciding whether to approve you for a loan. You don't need to go overboard when it comes to your credit mix, but you should try to keep a good variety of accounts.
The bottom line
Maintaining a decent credit score can be a key factor of financial security in life. Make your payments on time, keep your credit utilization down, 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 these things consistently, you'll see your credit score increase over time.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.
Source: iQuanti, Inc.