Have you seen your credit score recently and been less than thrilled with your report? Potential lenders use this score, along with your credit history, to determine your future ability to repay the credit they consider extending you. The first step to improve your credit score is to understand the five factors that contribute to the score calculation.
Your Payment History – 35%
Making payments timely is the largest factor in determining your score. Paying at least the minimum amount on your credit cards/loans by each due date allows for a more favorable history. It can be challenging to make timely payments if you have multiple lines of credit with payments due on different days of the month. At CCCSMD, you can work directly with a financial advocate to identify ways to pay down your debt while you work to rebuild your credit score. One of the solutions we offer is a Debt Management Program, which is a structured, easy to follow, full repayment plan.
Amounts Owed – 30%
Your credit balances compared to your available credit are the second largest factor in calculating your credit score. The more accounts you have with balances, especially balances that are high compared to the total credit limit, may be an indication that you are overextended. If any of your credit lines are maxed out, you might be having difficulties repaying your entire debt. Try to keep your balances at less than half of the total available credit.
Length of Credit History – 15%
The longer you have had credit, the better your credit score will be. The ideal situation is to have a long credit history with the same lender. You may have available lines of credit that you do not use. Leave these accounts open so they may contribute to the length of your credit history. Closing these accounts could have a negative impact on your credit score.
New Credit – 10%
This factor considers how many new inquiries have been made and how many new accounts have been opened. Multiple inquiries related to car or mortgage shopping are counted as one inquiry as long as the inquiries are within a limited period of time and you do not apply for any other credit type during that period. To limit the negative impact from inquiries, you should only apply for credit when you absolutely need it. Pulling your own credit file does not count against you.
Types of Credit Used – 10%
Demonstrating that you can manage various types of credit has a positive impact on your credit score. Credit cards, mortgages, and auto loans are common types of credit that are taken into consideration in this factor.
Now that you know the five factors, you can start identifying which areas need improvement to improve your credit. CCCSMD offers Credit Report Reviews, a one-on-one session with a financial advocate where you get a chance to review your credit report, and gain a better understanding of all the factors impacting your existing score. Call us today at 1-800-642-2227 to schedule an appointment!