Know Your Credit

Building or rebuilding your credit is not impossible, but it also doesn’t happen overnight. Your credit score determines everything from your ability to obtain credit and be approved for loans to what kind of apartment you can rent. Luckily, credit scores are not set in stone and can be significantly improved over time. The most common credit scoring algorithm is produced by the Fair Isaac Corp, or FICO and typically breaks down along the following lines:

300-629: Bad Credit

630-689: Average Credit

690-719: Good Credit

720 and up: Excellent Credit

So how do you improve your FICO score? Knowing what factors go into credit scoring helps tremendously.

Approximately 35 percent of your credit score is your payment history. This includes everything from your past payments on credit cards, installment loans, mortgage loans, and retail accounts to public record items like judgments and liens.  Timely payments on all accounts will improve your payment history score whil delinquent accounts and public record items will have a negative impact.

30 percent of your credit score is amounts you owe.  This part of the score looks at all accounts and the amount that is owed on each.  Your score is also determined by how many of your accountshave balances and how uch of your total credit line is being used on each account.  Finally, your FICO score takes into consideration how much progress you are making paying down loans by comparing your balance to the original loan amount.

15 percent of your scored is length of credit history.  Your score is determined by how long you've been using credit in general and the length of specific credit accounts. In addition, this part of the score takes into account how long it has been since you've used an account. Finally, new credit counts for 10 percent of your FICO score.  This includes how many requests you've made for new credit, how long it has been since you have opened a new account, and whether your recent credit history is good.

Now that you know how your credit score is determined, request a copy of your credit report from  You are entitled to one free copy from each of the three credit bureaus - TransUnion, Equifax, and Experian per year, but it’s better to make one request every four months if you’ve pulled your credit before.  If you are unhappy with your score, here are some ways to improve your credit! 

Keep the balances on your credit cards at or below thirty percent of your overall credit limit 

Keeping your credit card balances at or below thirty percent of your limit. In addition, make consistent payments at an amount over the minimum monthly payment. This shows your ability to pay down the loan. Balances over thirty percent can negatively affect your credit score. For example, if you have a $2000 credit limit, maintain a balance of $600 or less.  Maintaining debt levels below thirty percent can be particularly tough for those with only one credit card, but banks may grant your request for additional credit if you are a good customer.

Pay on time 

Making your payments on time, even if it is the minimum, is the easiest way to improve and maintain your credit score. Even a few late payments can drop your score. Remember that you can expect on-time credit card payments to appear on your report, but payment information from utility companies is typically not included in the score.  If you’re struggling to make your payments, reach out to your creditor and negotiate for an alternative payment schedule.

Remove small balances 

Paying off small amounts on cards you use infrequently can improve your credit score. Your FICO credit score includes the number of cards you have with balances. Gather up your credit cards with small balances and pay them off. Owing the same amount but having fewer open accounts may lower your score.

Don’t be afraid of old debt on your report, as long as it’s good debt

Once you’ve paid off your home or car, there is no need to have these old accounts removed from your credit report. As long as you have a solid repayment record, old debt is good for your credit and shows a history of timely payments.

Apply for new credit accounts only as needed  

Applications for credit show up as inquiries on your credit report, showing lenders that you are considering taking on more debt. Only take on that debt if it’s necessary. Instead, it’s smarter to use the credit you already have responsibly. 





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