Ways How To Improve Your Credit Score
Just as it is important to understand and periodically review your credit report, it is necessary to know your score. This powerful three-digit number is calculated based on the financial information found in your credit history. It’s what creditors use to determine if you are an acceptable candidate for a loan, credit card, mortgage, or employment. This article takes a closer look at scores with ways how to improve your credit score and manage it effectively.
Managing Your Credit Score
One of the best things you can do to maintain a strong financial position is to manage your credit. To maintain a good credit score, start with checking your spending, especially as it relates to your credit card accounts. Make sure you understand how much you earn each month and how much you have available to spend on credit. Most of all, do everything you can to stay within a healthy range. You can get into trouble quickly with overspending. Simply staying within budget while trying to repair your credit is much more difficult after the damage.
In addition to watching your spending, strong organization skills as they relate to managing your payments also come into play. Knowing amounts and when payments are due is important to maintaining a strong credit score. One way to manage your bills is through automatic payments. Regular scheduled withdrawals made directly from your checking each month, make it easy to stay on-time. If something happens that cause you to be late on a payment, contact your creditors before the due date arrives. If you are proactive, they may work with you – and keep negative marks off your credit report.
The Credit Score Formula
Working to manage your credit within your means is an important part of maintaining a strong credit score. In addition, understanding the calculation of the credit score is equally important. Per My FICO, the leader in providing credit scores to lenders, the calculation is based on the following elements:
- Total amounts owed –30%
- New credit obtained – 10%
- Length of credit history – 15%
- Payment history – 35%
- Credit mix (types of accounts) – 10%
Additional ways how to improve your credit score is critical in each of these categories. A significant portion of the calculation is based on payment history, however it is not the only part of it. To achieve – and sustain – a high credit score, you must work toward maintaining a good credit history. In addition, finding a balance between new and established credit, account mix, and usage help to maintain a solid score.
Simulating Changes In Your Credit Score
Other ways how to improve your credit score is to look ahead with the FICO credit score simulator tool. This service is provided at no cost to you through Fair Isaac. The simulator allows you to input your current financial picture, including the number of credit accounts you have. In addition, any delinquencies, the percentage of available credit you’re currently using, and total amounts due across all accounts. Based on this initial data, the FICO simulator provides a range where your credit score most likely falls.
A recent enhancement to the score simulator provides insight into the impact credit habits changes might have on your score. For instance, you can see what paying down a credit card or maxing out limits would do to your score. Forgetting to pay a bill, a new loan, or increasing your credit limit are what-if scenarios available through the simulator. If you expect a change with credit usage, the simulator provides direction on the effect to your credit score.
Improving your Score
If you’ve made mistakes and are trying to improve your score, there are steps you can take to get better. Because payment history makes up the largest part of the credit score calculation, it makes sense to start there. First, aim to bring any delinquent accounts to a current status. Pay past due amounts, and set up a system to be on-time going forward. This may require setting up automatic payments and reminders ahead of the due date.
Decreasing the amounts you owe will also help, as this contributes to 30% of your credit score. Keeping balances low on credit card accounts is important, as it shows you manage credit limits in a responsible way. Instead of shuffling your debt from one card to the next, work toward paying it down fully. Also, keep your revolving accounts open, even if you aren’t consistently using them. In addition, try to avoid opening new accounts simply to boost your score.
Other ways how to improve your credit score is to look after the type of credit you use. Especially if you only have student debt or a car loan, think about adding a credit card to diversify accounts. As with most credit accounts, spend within your means and pay down balances as soon as you’re able.
Managing your credit score does not have to be a full-time job, but it does require some work to maintain. Boost your understanding of the credit score calculation, and pay close attention to how you utilize the credit. These steps will have a positive impact and improve the perception lenders have of how you manage your financial affairs.
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