Would you like to be on the top of the credit score scale? Your credit profile also known as FICO score, tri-merged credit report and personal credit history, is one of the major elements that affect the interest rates you’re offered by lenders and credit issuers of all types. Whenever you apply for a mortgage, a lease, revolving accounts, car loan, business loan or even career employment today, one of the first things evaluated in your personal profile is your credit profile, this fact alone means that you need to keep a close eye on your personal score so that you know exactly what is affecting it. Start using these strategies and you’ll move up the credit score scale quickly.
Credit Score Range
The numerical scale officially lies between the range of 300 to 900 points. However because it is rare to have a score which lies on the very top or bottom of the numerical range most reporting companies use a more standardized numerical value scale which measures from 350 to 850 points. For example, Equifax® uses a numerical value range between 280 to 850. An average credit history will usually have a score between 600 and 700 points and generally speaking, a credit score of 730-740 and above that can be considered excellent. What really determines your scoring?
There five important elements that determine your final credit score…
1. The largest element is your payment history makes up around 35% of your score. This means that if you have been paying your bills on time and don’t have many outstanding payments you have won 35% of the game.
2. The next 30% is based on how much you owe. You need to think of this as a percentage in which you take into account all possible credit sources including mortgages, home loans and credit cards etc. and directly divide it by all the credit which is available. Statistically speaking average Americans use about 30% of their credit with only a small 12% using over 80%.
3. 15% is based on the number of years you have established credit. This is based on the reasoning that a person who has considerably new credit may probably not have encountered major financial stress and other life events.
4. The various types of personal accounts affect 10% of your ranking. There are two major types of credit revolving and installment. Generally people who use a mix of both types from various sources can expect to have higher scores.
5. The final 10% is based on when you last applied for a loan or new accounts. An average American applies for a new type of credit once in around 20 months. More recent applications which are spaced closely between each other indicate an applicant’s need for more money which is of course regarded as a negative factor on your personal profile.
Raising your Credit Score Tips
One of the primary causes of lower credit scores is the result of having too much debt.
The first thing you really need to do if you know you have too many account balances and payments affecting your financial profile is to pay down your open accounts and if possible, consolidate your revolving debts. One very effective way you can use to reduce your credit card balances and then pay them off, is to start with the lowest balance card first and put as much as you can each month toward that credit balance until you’ve paid it off and then do the same with the next credit card balance and the next. Keep all of your payments current. Create your own monthly plan to pay off any installment type loans, student loans and auto loans. Start saving every month.
Another tip that can significantly improve your score is to try and maintain your credit card outstanding balances below 30% percent of what your available limit is on each card. Since an older credit history holds value it’s time to dust off those old unused accounts and use them occasionally. Issuers often stop updating accounts which haven’t been used for a while. However the accounts will still appear and taken into consideration on your personal score but may not hold as much weight as it should. Using your oldest revolving accounts a few times every couple months and paying them off in full can also positively impact your credit score. If you put a plan together and stay committed and put your plan into action, you can improve your credit score quite significantly.
If you are just beginning to build your credit, or you want to significantly improve your credit scores, you will be doing yourself a huge favor if you have a solid understanding of the credit score scale and how the credit reporting bureaus evaluate and rate your credit worthiness. But not to worry, if your credit has been damaged you can improve it and raise your scores and maintain an excellent credit rating for yourself. Follow these tips, check your credit regularly from all 3 major reporting bureaus, watch for errors, document your correspondence with creditors in writing carefully, be persistent in getting any mistakes corrected promptly and always seek advice from your own legal, accounting, tax and other professionals to assist you.