Improve Your Credit Score

Credit card companies, home equity lenders, auto loan lenders and finance companies use your credit score when you apply for credit or a loan. A credit score is defined as a snapshot or summary of an individual’s credit history. Having a low credit score means that you did not receive a credit card or the loan you were applying for. If you do receive a credit card or a loan but have a low credit score it means that you will pay a higher interest rate on those two entities. Some lenders throughout the country will also use your credit score to set the price for your loan. There are five main known factors that determine what an individual’s credit score is. Those five main factors are the individual’s payment history, the individual’s outstanding debt, the individual’s length of credit history, the recent inquiries on the individual’s report and the types of credit in use by the individual in question. All five of these categories are assigned a percentage as to how much they effect the credit score. The two most important factors are payment history (35%) and outstanding debt (30%). To improve your credit score you should not submit any late payments to credit card companies and you should reduce the amount of outstanding debt you may have. Also, do not apply for many new accounts all at once; this can help to determine a poor credit score. The higher your credit score, the better off an individual is when it comes to obtaining a loan or lowering interest rates on their credit card accounts.

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Length of Credit History

This factor is worth 15 percent when it comes to determining an individual’s credit score. The longer your credit accounts have been open and active, the better your credit score will be. So, if you opened an account four years ago but rarely use it, don’t deactivate the account, begin using it again if it is the longest tenured account you have.

Recent Inquiries on Your Report

Mentioned above, if you apply for multiple accounts all at once or in a short period of time, this could negatively affect your credit score. If you are applying for an account based on a promotional inquiry, this will not affect you negatively. For instance, an individual signed up for a credit card at a baseball game to receive a free baseball, this will not go against your credit score.

Types of Credit in Use

This final factor in determining an individual’s credit score is 10 percent of the mold. If an individual has loans from finance companies open than this will more than likely lower your credit score. A loan from a finance company tells other creditors and lenders that you are in need of assistance to pay off your current credit cards, loans, or mortgages.

The Numbers

The numbers of credit scores range from 300 to 900 and the average falls roughly around 750. There are three credit bureaus in the country that have a report on every individual’s credit history. Those three bureaus are Equifax, Experian, and TransUnion. The closer your credit score to 300 is, the harder it will be to convince a creditor to make you an affordable loan. The closer your credit score is to 900, the easier it will be to obtain an affordable loan.

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