Lets face it, these days having a good credit score is essential in order to obtain even decent interest rates on credit. The days of instant pre-approval, no credit checks, and bad/ no credit accepted are over. Whether you like it or not to credit lenders your credit score will be the only representation of you and these means you better have a good one if you want to see a dime on credit. In order to know how to fix your credit rating or credit score you have to know what your credit score is made up of.
Your credit score takes into account multiple factors which are each given a percentage value that make up your score. The following is a list of these factors and their percentage value in your score: Payment History (35%), Amounts Owed (30%), Credit Length (15%), New Credit (10%), and Types of Credit (10%). As you can see some of the factors affect your score more than others so when coming up with a plan to fix your credit score your plans need to attack these factors in the order listed above.
Payment History: Because this factor makes up 35% of your credit score, which is the biggest portion, you need to make sure that you are paying all your bills on time as agreed. Even one late payment can hurt this area substantially so if you haven’t been paying your bills on time start now and if you have keep it up.
Amounts Owed: What this factor covers is how much of the credit you have is being used. This factor makes up for 30% of your score so aside from paying your bills on time you need to focus on this factor the most. If you have 10,000 worth of credit and you have 7,000 charged up then your debt to credit ratio is 70%. Ideally you want to keep your debt to credit ratio below 35% however most people in the high 700’s and low 800’s score range keep their debt to credit ratios between 0% and 7%. So if you have a lot of racked up debt start paying it down immediately.
Credit Length: This factor makes up 15% of your credit score and it is one of the factors you can control the least if you are a young borrower. Basically the longer you have a line of credit the better because it shows consistency. The best advice for this area is keep your older accounts open and on good terms.
New Credit: This factor makes up for 10% of your credit score. Actively searching for new credit can hurt your score. Every time you apply for a new credit line the creditors will conduct a hard credit check on your credit report which in turn will lower your score. The best advice is try to avoid applying for new credit if it isn’t needed.
Types of Credit: This factor makes up for 10% of your credit score. The more diverse your credit types are the better. Obviously taking out different types of loans if not needed is not a good idea however don’t count on just one type of credit helping out in this area. If you can have unsecured loans, secured loans, installment loans, and credit cards than you will have no problem with this factor.
So there it is, if you want to fix your credit rating create a plan that takes all of these factors into account and make sure that you attack the factors that hold the most weight first.