6 Easy Ways To Improve Your Credit Score

Credit scores are constantly changed and re-calculated and anything you do financially can impact it, both positively or negatively. Here’s a list of a few ways you can (dramatically) improve your credit score.

1. Review your credit report

It’s not uncommon for credit score reports to contain errors. Make sure you double check it and fix any mistakes as it may impact your overall credit score significantly.

2. Pay your bills on time

This is also an extremely important things to watch out for when trying to improve your credit score. Paying your bills frequently and in full amount can go a long way in improving the credit score. If you have the means then make sure your debts are always paid. Although it will not improve your credit score over night, in a few months you should see a dramatic change.

3. Reduce your balance on credit cards

Reducing the balance on your credit cards to 75% or less of the available credit will also affect your credit score. 25% is a preferable amount, although no debt is always best.

4. Keep old credit cards and accounts

Creditors will always look into your financial history, so even if you’re not using that old credit card you may get a better credit score. Pay a small amount every few months with that credit card and as soon as the statement arrives pay it in full.

5. Don’t make unnecessary credit report inquiries

Frequent inquiries into your credit reports will lower your score. Do note if you’re looking for a best deal for a loan make sure to have all your inquiries within a week or two as they will be counted as only one inquiry.

6. Pay down your credit cards

When improving your credit score the best strategy is to pay down credit cards which are closest to their limit, rather than the typical advice to pay those with highest rates.

These are just six tips but can go a long way in improving your credit score. Make sure you always keep them in mind!

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What Your Credit Score Affects

The single most important thing to note about a low credit score is that not only may it prevent you from actually receiving credit, but you will also get a higher interest rate as lenders see you as a bigger risk.

The following chart will show you how a low credit score can significant affect your interest rates when applying for a car loan:

Credit Score 36-month new auto loan 48-month new auto loan
500-589 18.597 18.598
590-624 16.206 16.206
625-659 12.225 12.226
660-689 9.498 9.500
690-719 7.386 7.390
720-850 6.674 6.678

So what did we find out from this table, except the rich are getting richer? With a low credit score, you will end up paying 3 times higher interest rate than someone with a higher credit score.

If you still think your credit score doesn’t matter, I hope this explains exactly why it does. It’s not only about actually getting a loan, but rather how much interest rate you will have to pay for it. I’m sure you’ll agree it’s much more acceptable to pay a 6.6% interest rate than 18.5%.

A lot of insurance companies are lately using credit scores to determine your rates as well; the so-called insurance quote. If you read one of my previous posts you should also know it’s being used by a lot of other companies, as well as your employers. Credit scores are becoming more and more common and even more important with each passing day, so put some thought into it and boost your credit score with our tips today.

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Credit Score Factors – How It’s Calculated

One of the most important things about improving your credit score is knowing how it’s calculated. There are several key factors used in determining your credit score and in this article we’ll discuss them.

There are several methods of credit score calculations but the most popular one is FICO. We won’t be going into too many details about its origin since it’s not important.

Credit Score Factors Chart

A person’s credit score can range from 300 to 850. The exact formula for determining it is not publicly released, but fortunately plenty of information about it is available if you know where to look. Here’s a breakdown of the calculation of a credit score:

  • 35 percent of your credit score is based on your payment history.
  • 30 percent of the score is based on outstanding debt.
  • 15 percent of the score is based on the length of time you’ve had credit.
  • 10 percent of the score is based on new credit.
  • 10 percent of the score is based on the types of credit you currently have.

The first thing lenders look at and the most important factor is your payment history as all lenders first and foremost want to know if and how frequent you are paying your bills. Any bankruptcies and debt collections also come into play in here, especially if they are recent.

Outstanding debt is the second thing these companies look for. Your credit card limits, home loans or car loans and more are all in here. If you possess more credit cards at their limits and have more loans the score will be lower. It’s a good practice to keep all your credit cards a 1/4 of their limits or higher.

The length of time you have had credit is a very important factor as well. You see, the longer you have credit is actually better for your credit score! It’s because the companies have better insight into your payment history and can better predict your future payments.

Opening new credit accounts will lower your credit score for a short periods of time. If you frequently inquire about credit you may even get a negative credit score for that so be careful.

The last 10 percent of your credit score calculation is based on the types of credit you already have. The companies look at whether you’ve had experience with a variety of credits and loans and improve your credit score appropriately.

You should remember that some lenders have additional credit score factors in their calculations as well such as your salary or how long you’ve been employed. Those factors often can not be controlled by you however they can still be improved — but we’ll discuss that part in one of the next articles.

If you want to find out (for free!) what your credit score is be sure to check this out.

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What is a Credit Score

We’ll talk a lot about your credit score here so it’s good to begin with a basic explanation of what it is and how it works.

Basically, a credit score is a numerical value various banks and credit card companies use to evaluate whether you are eligible to receive a loan or not. It’s based on a statistical analysis of your previous expenses and earnings.

There are also many other organizations which use credit scores to analyze “you”: mobile phone companies, insurance companies, some government departments and even your employers. That’s why it more important than ever that you inform yourself about your credit score and find out how you can improve it.

If you wish to learn more basics about the credit score Wikipedia is a good place to look, but for more detailed information stick around and read some of our other posts here.

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