A credit score or FICO score is a three-digit number that tells a lender about a person’s financial situation and whether or not he will be able to repay his or her obligations on time.
You can acquire this score from the three credit agencies, TransUnion, Experian, and Equifax, which gather all of the information regarding your credit history, both current and previous. They submit it to your credit bureau, which is subsequently shared with creditors that want to check your credit history before giving you money.
It is critical to have a high score since it makes it simpler and less expensive for lenders and borrowers to borrow money when the score is high. It has the potential to save you thousands of dollars in interest charges.
Understanding the Components of FICO Score
Your FICO credit score considers about 30-35 percent of your payment history. Whatever occurs, be sure you pay your bills on time. You may set up automatic payments if you know you’ll have enough money in your checking account. It is useful if you anticipate any complications, such as going out of town for an emergency or going to the hospital, etc.
The amount you owe holds 30% of your credit score. If feasible, maintain your credit card balances to less than 50% of the total limit on each card. The lower the percentage, the better.
Most individuals are unaware that your credit history accounts for 15% of your FICO score. If you have a credit card that isn’t being used and has a zero balance, it might damage your credit score. So, each month, charge something modest and pay it off to enhance your credit history.
Get a new credit card. Make sure you aren’t creating any new accounts. The number of new accounts you open accounts for 10% of your FICO credit score. It is also true while looking for a car or a car loan. If you’re comparing prices from different businesses, do it promptly – no more than two weeks. It’s not worth it to drag it out. Making many requests may have an impact on your FICO credit score.
Instead of having the finance officer at the auto dealership search around, it would be preferable to acquire the loan via your credit union. Each query he/she does is recorded on your credit report as an inquiry mark.
The combination of loans accounts for another 10% of your FICO credit score. You probably won’t do much about it except obtain a credit card if you don’t already have one.
A Must-Read Guide to Improve Your Credit Score
Credit may be harmed by various factors, including credit statement inaccuracies, obsolete information, and false information. To keep your reputation clean, you should check it at least once a month.
It will make it easier for you to get decent loans in the future. FICO scores are being evaluated using a variety of factors, including your auto bill, medical bill, number of credit cards, prior indebtedness, and any other financial information. Banks look at this to ensure that you will be a good payer and that they will not lose money. Here are the top 5 ways to improve your credit score easily.
1. Make sure you pay all your payments on schedule each month.
If you have below 700 credit score, you’ve probably missed a payment before. One of the worst things you can do to your credit rating is miss monthly payments.
2. Consider using a small portion of your credit limit.
Credit usage, or the percentage of credit you utilize (balances) relative to the amount available to you, is the second most important factor in your credit score (limits). If your usage rate exceeds 50%, your score will suffer dramatically. So keep your balances low and avoid incurring charges on low-limit credit cards.
3. File a dispute with the credit bureau if your credit report contains mistakes.
According to a US Public Interest Research Groups poll, over 80% of credit reports contain inaccuracies, and these inaccuracies might hurt your credit score. That’s why it’s critical to review your report frequently and contest any inaccuracies you notice.
4. Don’t apply for many new credit cards in a short period.
New credit is a component of your score that comprises the number of new credit inquiries on your credit report, which occur whenever you apply for credit. When applying for a house or auto loan, there are built-in safeguards to restrict the number of queries on your credit report; however, this is not the case with credit cards. Your credit rating will suffer a three to five-point knock each time you apply for a new card.
5. Keep credit card accounts that you don’t use open.
When you terminate a credit card account, your overall credit limit is reduced, influencing your credit usage. Remember, credit usage is the ratio of your balances to your credit limits. If your balances stay the same, but your credit limit is reduced, your credit usage will rise, and your credit score will fall. Rather than closing cards, put them to good use by charging tiny payments to keep them active.