If you saw my last post, in it we talked about monitoring your credit. We talked about where you could find this information, and what to look for. Now, I’d like to talk to you about working on getting these scores to the area that is considered good credit.
Experian.com states that a score of 700 and above is considered good, and 800 and up is considered excellent. This is in a range of 300 to 850.
Now that you know where you need to be, let’s get into some of the ways you can work toward this goal. The first thing to know is, what exactly effects your credit score. On time payments is one of the most important things to remember. Always do your best to pay your bills on time. If you currently have a credit card or a car loan, try to make those payments on or before the due date. If you are having trouble, try contacting the creditor and requesting a different due date that coincides better with your paydays. Even accounts that aren’t reported to credit bureaus should be kept current to ensure that they aren’t defaulted and reported as so. It will also help create good habits of paying on time.
Also, keep in mind, if you can no longer maintain an account and decide to close it, you may still be charged interest and fees on any outstanding balance until it’s is paid or written off to a collections agency. Keep that balance in mind when making your payments so it can be taken care of as well.
Another factor that plays a major part in determining your credit score is credit utilization and balance owed. Experian.com explains it as being calculated by your total credit card balances divided by the total available credit limits. The ideal percentage for credit utilization is less than 30%. So, if you currently have credit cards, try to keep your balances at less than 30% of your available balance. If you are using all of your available balance each month, lenders will see that and think that you are living beyond your means. This could influence their decision on extending new credit. I recommend paying on your balances on time, of course, but also in multiple payments if you can. This will keep your balance low when your creditor sends your monthly balance to the credit agencies.
Credit history is another factor in your credit score, and creditors like to see a well-established history of credit usage. When looking at credit history, there are a few things that are considered. The length of all open accounts, amount of credit applications as well as payments history are all taken into account. So, it’s better to have one long term account with good payment history, then having four recently opened accounts.
The last two contributing, factors, new credit applications and types of credit, don’t have as big of an impact. However, when it comes to credit, one or two points can make a difference. Any time you apply for a new credit card or loan, it’s recorded on your credit report. This is called a hard inquiry and these stay for one year. Multiple hard inquiries, especially in a short period of time, will not only lessen your score, it will also give the impression that you aren’t currently in the best financial situation.
If you apply for a card or loan and are declined, typically you will receive a letter showing why you were declined. So instead of applying for another line of credit through a different company, wait until you receive that letter, and try to fix the issues listed as reasons for denial, and then try again.
And lastly, having different types of credit is a plus. This means having a mix of credit cards and loans instead of just having a bunch of different credit card accounts. Regardless of the accounts you have open, always make sure to keep them in good standing. With this information, you can determine where you trouble areas are, and start making the corrections and progress to get you in the score range you would like to be within. If you do not currently have open credit accounts, we will talk about some options to get you started in the right direction in my next post.