While you may have some idea that your credit score is important, most don’t know how often it comes into play in our lives. If you have ever tried to get a job, an apartment, insurance, or a loan, then you have most likely had your credit score checked. Because of this, it’s necessary to have and maintain as good of a credit score as you possibly can. Your credit score is how lenders decide how creditworthy you are. All kinds of people will try to access your credit history before you even know it.
Do you happen to know what your personal credit score is? Whether you do or not, you have probably wondered at one point or another how Equifax, Experian and TransUnion come up with their respective scores.
First, you should know that the credit score is designed to look at your credit risk in an objective manner. In other words, being friends with the lender won’t help nearly as much as a high score will. Credits scores use your expenses, income, how much credit you currently have, how much you owe and how good you are at paying your bills on time (loans and other bills are included). Once these numbers are known, each agency applies their own formula to come up with your score, which they, in turn, share with those who requested the information.
Here is a brief list of things that can lead to a lower credit score. These things should be avoided or eliminated if at all possible:
* High amounts of unpaid debt.
* Income to debt ratio that’s too low.
* Bankruptcy within the past ten years.
* Habitually late payments.
* Lack of an established credit history
* Utility bills that haven’t been paid
* Excessive open credit accounts, regardless of balances
* Too many accounts opened at the same time.
* Closing accounts that are still carrying a balance.
The credit agencies do not release exactly how they calculate their scores. However, consumer advocates have been able to figure out which steps you can take to help improve your score. By following the methods listed below, you’ll give yourself a good chance of getting a higher score:
* Only apply for one type of credit at a time. Then wait for a couple of months before applying for more credit.
* Pay all of your utility bills on time, every month.
* Don’t spend more than you bring in.
* Make all of your credit payments on time.
* Pay as much over the minimum on your credit cards as possible.
* Only buy necessities (such as food) with your credit card if you will commit to paying it in full as soon as it’s due.
* Open a savings account for emergencies to avoid overextension of your credit.
* Save up for larger items to keep from charging too much.
* Get a copy of your credit report once a year. Check for, and correct, any inaccuracies.