How Is Our Credit Score?

Everyone knows that if you have a good credit score, the easier it is to borrow money or get financing. A lot of credit seekers do not know how a credit score is calculated. There are many deciding factors in calculating your credit score, we hope you find this article helpful.

Are You A Late Payer? Payment history is considered by lenders as the most important variable. Your payment history makes up a full 35% of your score. This will be placed on your credit rating file. Beware that lenders will have access to your payment history whenever you apply for finance. For a high score it is recommended to pay your monthly payments early. Some creditors will report you as a slow payer even if you are only a few days behind. This must be avoided if you want and desire a high credit rating.

How Much Do You Owe? This can make up 30% of your credit file and is known as your debt ratio. This is described by the debt you owe versus your credit limit. For example we could be in possession of a credit card with a spending limit of $500 and you owe $480 this is a very large debt ratio and could have a negative affect.

You should make an effort to reduce your credit card debt by 50% or lower, this will positively influence your credit score. If you pay off your credit card or keep your credit card debt under the 50% mark you will receive the exact same amount increase in your credit rating.

How Long Have You Had Credit? The longer your credit has been established, the better. Lenders want to see that you consistently over a long period of time pay your bills. This is the third most important factor within your credit report.

For a high credit rating don’t close paid off accounts. If you have a credit card that you have had for over five years, leave the account open. You don't have to use it, but this will extend the length of your credit history and that will help get your score up.

What Type of Debt do you have? Whatever type your debt is, this will be responsible for 10% of your total credit score. The types of debt creditors will look for are as follows: loans, revolving credit & credit cards. The reason lenders score the difference is because loans and credit cards have set monthly payments.

Let’s say for instance your revolving credit makes up your credit report, this will not help you. This is because lenders know that the monthly minimums will vary every month depending on how much you chose to spend.

Applied Recently For A Credit Card? To keep your score high, the less times you apply for credit the better. This is responsible for 10% of your credit report. Be responsible when applying for credit, as this stays on your credit file for two years. It is advisable to limit applying for credit cards & loans, over an over again.

People shopping around looking for a big purchase like a car, can fall into this trap. You will probably allow a car dealership to run a credit check and run a credit report at each one to see if you’re credit worthy, this will greatly lower you credit score as each credit report is run. Do not let anyone run a report until you are ready to sign on the dotted line.

As you can see this is how your credit score is calculated. Hopefully, a few of these tips will help you raise your score. Your credit score total can be between 300 and 850. Obviously the higher the better for your credit rating.

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