What makes up a good credit score? I always want to protect my credit and make sure I'm at 800+ because that is leverageable. I can leverage good credit to get better interest rates, get approved for loans and get approved for MOST credit cards.
- Good Payment History: 300 Points
- Credit Utilization Ratio: 255 Points
- Length of Time: 125 Points
- Credit Mix: 85 Points
- New Credit: 85 Points
Credit Score Factor #1: Payment History
Lenders always have one major question; “Will I get the money back?”
Your credit score displays your history of being reliable to a lender. It portrays whether you can be trusted to pay back any loans. If you have a poor credit score history, it increases lender risk.
So how do you maintain your payment history to keep your credit score, right? Here are some simple strategies:
- Setup Payment Reminders.
- Follow a Budget
- Consider a Debt Consolidation Loan to Lower Your Payment
Pro Tip: Pay off each balance a week before the credit card reports it to the credit agencies. That will boost your credit score 7 to 17 points immediately.
Amount of Availability Counts as 30%
Credit utilization is the amount of credit limit that you utilize. The available amount of credit that you use counts for 30% of your credit score. Professionals advise you not to use more than 30% of your available credit limit. If you want to raise your credit score, check out the fastest way to get a credit score of 800+
Setting balance alerts can help you in keeping your credit utilization low. We recommend TransUnion Credit Bureau's unlimited credit report access. They just added a new service called Credit Compass that helps boost your credit score. We use it to lock our credit reports if we lose a wallet or suspect ID theft. Click here to create your account.
Weird Tip: When you buy a house, they take into account every single credit card balance you have. The loan will be rejected if the amount of debt to income ratio is more than 36%. If you have an IRA, you can get a loan secured by your IRA that consolidates every single credit card. That will immediately boost your credit score, wipe our all the balances, lower the debt to income ratio and that IRA loan doesn't count towards anything.
Credit History Length Counts As 15% of Your Credit Score
The time span for which you have held credit accounts sums up for a total of 15% of your credit score. The age of your oldest credit account also comes into consideration in the credit history length. Moreover, the age of your newest credit account, along with the average of all accounts, counts a lot too.
The rule is basic: your credit score will be higher if your credit history length will be longer. Do not cancel your oldest account. If you need to close accounts, close your newest ones while leaving your oldest accounts open. Then, use the older cards to trigger usage reporting once a year.
How to Add Rent to Your Credit Report
Most landlords do not report your monthly rent to your credit report. If you pay your rent on time every month, that should boost your credit report by 40 points. We recommend Rent Reporters. They report your payments to Equifax and Transunion. That is listed a new tradeline on your credit report & within ten days, you will see a new score boost.
Click Here to See How to Add Your Rent to Your Credit Report
Diversification Credit Mix
People who have the best and top credit scores usually have a wide portfolio of their credit accounts. These might have a student loan, car loan, mortgage or credit card, etc. The credit mix sums up for 10% of your score and affects it largely. If you have a large portfolio of credit accounts, then how you manage each one of them makes a huge difference.
So these are the factors that have a huge impact on your credit score. But how can you avoid messing up your score overall?
What is credit? Why is it important?
Why do we pay strangers to handle our taxes when we should learn that at an early age. There are topics that we need starting from 7th grade up like “How to budget money and live within your means”. How to code at an early age. And how to invest your money while living in a “sustainable” living situation where global warming is real & we create solutions to help.
These are real-life situations that would make life easy for every adult. Yes, I'm on a soap box this month because my 11th grader is watching old movies and singing 80's songs and Texas is calling this a quality education. That's why Texas is ranked number 43 in the state for education. Yikes!
Your credit score portrays your financial stability. It showcases the history of your credit management and helps the lenders in determining how responsible you are financially. If you need to remove incorrect information on your credit report, here's how to remove negative information on your credit report.
The credit score ranges between 300-850. If you're looking to boost your credit score, check out this post on how to get a credit score of 800.
Every company determines the credit score in their own style, but there are certain factors that affect it. Here are the factors that make your credit score and can help you in maintaining it properly too.
Factors that hurt your credit score:
Here is a list of actions that hurt your credit score and are not financially healthy for you:
- Missing payments is the first thing that hurts your credit score a lot. Paying 30 days late or 60 days late has a huge negative impact on your score. Payment history accounts for 35% of your credit score. If you miss a payment, try this free credit repair app. It's free to download and scans for any missed payments and negative items.
- If your credit utilization crosses 30%, it hurts your credit score.
- The age of credit history affects 15% of your overall score.
- I found a few errors on my report, and every 90 days, I pull a credit report to make sure the information is 100% accurate. If it's not, I send a letter to each agency. I did this for 2 years straight until it was all off. My credit score jumped 50 points as a result.
- If you don't have time to pull credit reports and write letters, consider hiring a debt repair agency who specialize in cleaning up credit reports. We recommend Lexington Law and Credit Assistance Network.
- If you apply for a lot of credit, within a short period of time, your credit score will be a disaster. These indicate your financial crisis and how eagerly you have been in dire need of cash constantly. This can be a red flag for the lenders, and they probably would not trust you enough to fund you.
- Here's how to remove negative information on your credit report.
- If you close a credit card, then two factors change. Your credit utilization percentage goes up because the amount you have available decreases. Related: Top 5 Mistakes When Using Credit Card Travel
- Watch out for credit inquiries. Keep in mind new cellphones, credit line increase requests, opening CD's, buying a car all put a new credit inquiry on your credit report. I've noticed a one point deduction for each inquiry.
Know Your Credit Score & What's In It
If you need help understanding what's in your credit report, then pull a credit report once a year for free at FreeCreditReport.com. I use that once a year, but I prefer paying a small fee to get text alerts and daily updates. We recommend My Fico to pull your monthly credit report and view 10 Fico Scores from your phone. Click Here for My Fico alerts.