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Good News! Understanding your credit score is fairly easy and you can use this knowledge to help improve your score and keep it healthy.
Your payment history accounts for 35 percent of your score. If you haven’t yet had a consistent payment history, don’t panic. Part of the repair process begins with reaching out to creditors and bureaus to permanently remove incorrect, misleading and out-of-date information from your reports.
If your payments aren’t current, get current and stay current. Creditors will often work with you to create a payment plan so that you can stay current on payments. Making payments on time should be your first priority. This is the easiest way to affect your credit score.
Your credit utilization is 30 percent of your score. Your credit utilization rate is extremely important, and you want it to be less than 30 percent. What does it mean? Here’s an example.
You have three credit cards. Each card has a limit of $1,000. You do not have $3,000 of credit available for factoring into another open credit account. $900 is 30 percent of your $3,000 available credit. At any time you must not charge more than $900 in total for the three accounts combined.
Add your credit accounts, then add up how much you owe on those accounts. If it is more than 30 per cent, pay the balance as soon as possible. You will see improvement in your credit score.
Bonus Tip: Don’t let your credit card balance escalate from month to month. If you can’t pay off the balance within a month, don’t spend the money unless it’s an absolute emergency. This will keep your credit utilization under 30 percent and help your credit score immediately.
The length of your credit history accounts for 15 percent of your score. How long have you been borrowing? If you have a well-established credit history, you are considered less risky than someone who has just started borrowing. You are more trustworthy if you have successfully demonstrated that you are capable of paying back the money you have borrowed.
10 percent of your score is affected by new accounts and credit requests. A new credit account is considered riskier than an old credit account because you haven’t established a payment history. The same applies to new credit requests. If you’re requesting more credit, you need to borrow more cash than your monthly income — this tells creditors that you’re spending more than you’re earning.
Your credit mix is 10 percent of your score. Having a good mix of credits is a great way to build good credit. An auto loan, a mortgage and a credit card make a good credit mix.
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