Whether you want to buy a house, take out a loan, or even rent…you need to understand your credit score. Credit scores seem like this arbitrary number that is so important for every big purchase that we buy. There are apps that will help you know your credit score but they aren’t always accurate compared to the three credit bureaus. What exactly is a credit score? Why is it so important and how can you improve your credit score?
How is your credit score determined?
1. Payment History
Payment history is one of the most important factors in determining your credit score. Try to make sure you are paying your bills on time. Set your mortgage or other loans up on auto pay to help your payment history.
2. Credit Utilization
How much of your credit you use is important for your score. Companies look at how much credit you have and how much you are actually using. Try to use 30% or lower of your available credit.
3. Length of Credit
The credit bureaus want to see that you are financially stable and one way to show that is by having accounts open for long periods of time. Just because you pay off an account doesn’t mean you should close the account. You want to show that you have longevity with your credit.
4. Types of Credit in Use
The types of credit you use are important because you need to show that you have installment loans, mortgage type loans and credit cards. This shows diversity in your credit history.
5. Credit Inquiries
Checking your credit when you apply for a loan does have an effect on your credit score. Although there is a difference between soft and hard inquiries for checking your score. Don’t panic about this since it is the lowest factor BUT keep this in mind aka you should not be applying for 5 credit cards or loans at once.
Tips to improve your credit score
1. Check your credit report regularly
Take the time to get your free credit reports each year to check it and see if there is anything that is not correct on your report. You can dispute entries that are not correct on your credit report. Click here to get your free credit reports. Only use this website, there are so many scams out there.
2. Reduce Credit Card Balances
Focus on paying down your high interest cards. You will help your credit utilization score and save yourself money in the long run.
3. Establish a Good Payment History
Make sure you are paying your bills on time. Set up auto pay if that helps you or add calendar reminders. If you are late, reach out to the servicer (once you pay) and ask if they can remove the late fee and if they will report it to the credit bureaus.
4. Avoid Opening up Random Credit
Don’t just open up cards to get your amount of credit available larger. Instead of opening a new card, you can ask for a limit increase for your existing cards.
5. Be Patient and Persistent
Remember, your credit score will probably not be fixed over night but stay persistent in completing the steps you need to improve your credit.
If you are still feeling a little lost about your credit score, check out my course, Master Your Credit. For just $37 you will learn EVERYTHING you need to know about credit cards and credit scores.