Your credit score determines whether you have a track record of financial stability and responsible credit usage. This number is between 300 and 850, with the latter being the most common. This score is calculated by using your credit file information to calculate a FICO score for each person.
Your evaluation is based on the following:
1. How much credit do you have available
Believe it or not, how much credit you have available is the biggest factor in determining your credit score. Having plenty of available credit decreases your risk as a borrower and shows you’re able to manage your money well. It also shows that you’ve been responsible for applying for credit. However, lenders are careful with this number because new accounts will appear on your credit report and decrease the average age of your accounts. Also, a large amount of available credit can mean you’re a riskier borrower because you could spend beyond your means.
2. Your credit utilization ratio (how much of your total available credit is being used)
Your credit utilization ratio is another important factor in determining your score. Lenders like to see that you’re responsible with your available credit and if it’s not high, that you’re able to pay off the cards in full each month. Keeping this number low (less than 30% of total outstanding debt) will help improve your score. For example, if you have a total available credit of $10,000 and an outstanding balance of $3,000; your ratio is 30% ($3,000/$10,000).
3. Length of time that accounts have been open
The age of your accounts is another important aspect that can affect your score. An ideal scenario would be to have a mix of accounts that are old and new. This shows lenders you haven’t been applying for credit recently which they see as a good sign that you’ve been able to manage your money responsibly. In addition, older accounts will help improve your average age of accounts which also helps with your score.
4. The types of accounts on your report (credit cards, auto loans, mortgages, and student loans)
Your credit report contains different types of accounts like credit cards, auto loans, mortgages, and student loans. Lenders look for a mix on your report because certain account types (like those used to purchase large items) show you’re responsible for certain types of debt and others that may indicate more risk. For example, having a couple of installment loans can show that you’re able to manage multiple types of debt responsibly.
5. Whether or not you’ve had any recent delinquent payments or other negative items on your report that affect its score.
Paying your bills on time is another factor that’s important when it comes to determining your credit score. If you miss a payment or have an account placed with a collection agency, your score will drop. Some lenders might even decline you for credit if you have too many of these accounts on your report.
Just remember that while some factors are beyond your control, there are positive things you can do to help improve and maintain a good credit score and build a strong financial future.
What Can Raise My Credit Score?
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Check your credit report to identify problem areas.
Negative items you find on your credit reports can be disputed. Even if an item is accurate, it may not apply to you anymore. For example, a bankruptcy that’s several years old will no longer affect your score. Make sure the information in your report is correct and up-to-date.
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Pay more than the minimum due on your credit cards.
With each monthly payment, you’ll pay down your principal and save on interest fees. If you have a low balance relative to your available credit, ask your lender if they can increase it. For example, if you have one card with a limit of $5,000 and a balance of $2,000 on another card, you could ask to have your limit increased. This will help improve your credit utilization ratio which can increase your score.
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Reduce your overall level of debt.
Having a high debt load is another factor that can hurt your score. If you’re able to pay down your installment loans and credit cards, you’ll reduce the amount of interest and fees you’re paying over time which will lower your balance and utilization ratio.
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Pay off debt rather than move it around, such as from one credit card to another.
Moves like this will not lower your debt or improve your score. Be patient; it can take several months for an improved credit score to show up on reports.
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Apply for and open new credit accounts only if necessary
Don’t apply for new lines of credit too often, as the inquiries raised by these applications can also drop your score. If you do apply, be sure to understand the terms and conditions of any new account before signing up.
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Hire one of the best credit repair companies to negotiate with your creditors and work with the three credit agencies on your behalf.
Consider credit repair if your current credit score prevents you from qualifying for better loans and credit cards, such as mortgages or automobile loans. When you have a large amount of money to pay off back, a fast credit repair can take a long way.
Repairing your credit score may be difficult to address alone, especially if you have a negative credit history. The Oasis Firm is here to assist you.
We strive to make things lighter on your side as one of the top credit repair firms in Broward County, Florida.
We handle almost everything for you to repair your credit history and develop it over time. We carefully review your credit report, prepare dispute letters, and send them to the credit agencies. However, in order for us to make the process of improving credit score function, we need your help. All you have to do is provide us with all of the relevant information and paperwork, as well as a response from any credit bureaus once you obtain them.
Our lines are always open for you! Feel free to reach out and leave us a message or set an appointment for a quick consultation.