It’s important to be clear about the primary factors determining credit score calculation before considering any tips for improving it. Having this understanding will help the concepts we’re about to share make more sense.
With that said, the elements that go into calculating your credit score are:
- Payment history on your loans and credit cards
- The amount of your available credit currently in use
- How long you’ve had your credit accounts
- What types of credit you have
- Your frequency of credit applications
Here’s how you can use these influences to your advantage.
- Review Your Credit Report Annually
You’re entitled by law to a free copy of your credit report on a yearly basis; get it at AnnuaCreditReport.com. Look at the document carefully for errors as well as accounts you don’t recognize. If any are found, get in touch with the issuing agencies and the creditor listed to request the information be stricken from your record.
- Meet Your Obligations Diligently
Your payment history accounts for a full 35 per cent of your credit score. Diligence in this area is one of the most important things you can do to keep your credit score as high as possible. If you have some missed payments on your record, get current as soon as possible and do everything you can to stay that way.
Consulting a credit counsellor, or considering some form of debt relief, is a good idea if you’re having trouble meeting your obligations. Rather than improving your credit score directly, the services of a company like Freedom Debt Relief can make it easier to get your finances back on track over the course of months or years — which can do so eventually. The effect on your credit score will depend on your actions and circumstances, like whether you’re able to successfully settle debts.
- Minimize Your Loan Balances
Another primary determinant of your credit score is your outstanding loan balances. Further, they can do so in two different ways.
- Debt to Income Ratio: Lenders consider how much debt you have in relation to the amount of money you earn. The farther apart you can keep those two figures (more income than debts) the less of a risk you’ll appear to be.
- Credit Utilization Ratio: This is the amount of credit lenders are willing extend to you, measured against how much you’ve consumed. Creditors prefer new borrowers to come in at or below 30 percent utilization. It’s important to note this ratio applies across all of your accounts, as well as to individual accounts.
- Apply for Credit Carefully
Lenders file an inquiry against your credit report every time you submit a loan application.
Credit bureaus keep track of this and deduct points from your score with each instance. (Except when it appears you’re shopping for the best terms on a loan, as evidenced by a flurry of applications coming in within a two-week period for the same type of credit.)
Thus, minimizing the number of times you apply will help keep your credit score high.
Along these same lines, know your credit score and the minimum score a lender will accept before you apply. This will improve the odds your application will be accepted because you’ll only apply for accounts for which you know you’re likely to be approved.
- Keep Old Accounts Open
Keep credit accounts open when you pay them off. As you may recall, one of the factors creditors consider is the length of your credit history. Closing your oldest accounts will truncate it and reduce your credit score.
These five tips for improving your credit score have been proven effective. Leveraging the elements used to calculate credit scores to your greatest benefit, you will see your score improve if you follow them.