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How to Improve Your Credit Score

We all know the importance of a good credit score. We know that, the higher our number on that scale from 340-800, the better chances we have of obtaining loans, buying a home or new car, or getting our business off and running.

While lenders may consider anyone for a loan/mortgage, individuals with credit scores of 700 or better are typically offered better interest rates and financing options. If your credit score is low, there are ways to improve it, but doing so first requires that you better understand how your credit score is calculated.

Your credit score is more or less calculated by the data of your credit history being punched into a program and that program coming up with a number. This is why your credit score may vary a bit between each of the three credit bureaus, since they don’t all use the same calculation program. While exact values are undetermined, the calculation of your credit score is broken down into these approximate values:

Payment History – 35%
Your payment history includes the number of accounts that you have paid as agreed (on time, minimum payment made, etc.), any collection attempts made against you (accounts given to collection agencies, judgments against you, etc.), and the delinquent accounts you may have (the total number of past due payments you may have, how long your payments are past due).

What You Owe – 30%
Credit bureaus look at how much you owe, what type of accounts you owe on, how much of your available credit is being used, if you payments are actually making any headway on the balance and if you have any zero balances.

Length of Your Credit History – 15%
Your credit score is not only calculated by the length of time your credit has been tracked all together, but also the length of time that each account has been open, and the amount of time that has passed since the last activity on each account.

Types of Credit – 10%
Not only are the number of accounts you have important, but what type of accounts they are. Are they installment accounts, revolving (credit cards), mortgage, etc.? The more diverse the types of credit you have, the better your credit score will be.

New Credit – 10%
This portion includes the number of recent accounts opened and their proportion to total accounts on your entire credit report, the number of recent credit inquiries, and the time that has passed since the last inquiry or new account opened. Credit bureaus also look at whether or not your have re-established a positive credit history after encountering payment problems.

There are a number of things you can do to improve your credit score. First and foremost, make your payments on time and try and pay more than the minimum payment on credit cards. Additionally, when it comes to credit cards, try not to max them out. Instead, use them in emergency situations only and pay them off as soon as possible. However, don’t close out all of your credit cards just because you pay them off. Keeping a credit card account open, but never using it, actually helps to build better credit than not having credit cards at all.

Buy a paper shredder and use it to shred any documents that contain person information, such as credit card numbers, bank account numbers and social security numbers. You should also shred those pesky credit card applications you receive in the mail – you’d be surprised how people can actually use those to open a line a credit in your name.

Also, be sure to review your credit report at least once a year for any discrepancies or accounts that you did not open. Review credit card and bank statements monthly, as they come in, for charges you did not incur.

Basically, you just need to stay aware and on top of things. Keeping involved and consistent with payments will go a long way in giving you a credit score that will go a long way.

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By Michelle Cramer
Tuesday, August 14th, 2018 @ 12:05 AM CDT

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