The Five Elements That Go Into Your Credit Score

A credit score is a number that lenders use to determine the risk of lending money to a given borrower. Credit card companies, auto dealerships and mortgage bankers are three common examples of types of lenders that will check your credit score before deciding how much they are willing to lend you and at what interest rate. Insurance companies, landlords and employers may also look at your credit score to see how financially responsible you are before issuing an insurance policy, renting out an apartment or giving you a job.

In the next lines, we will explore the five biggest elementss that affect your score: what they are, how they affect your credit, and what it all means when you go to apply for a loan. You must know these aspects, even if you hire a credit repair company to help you out.

Your credit score is a three-digit number generated by a mathematical algorithm using information in your credit report. It is designed to predict risk, specifically, the likelihood that you will become seriously delinquent on your credit obligations in the 24 months after scoring.There are a multitude of credit-scoring models in existence, but there is one that dominates the market: the FICO credit score. FICO scores range from 300 to 850, where a higher number indicates lower risk.A consumer has three FICO scores, one for each credit report provided by the three major credit bureaus: Equifax, Experian and TransUnion. Unfortunately, consumers currently have access to only their Equifax and TransUnion FICO scores.

Data from your credit report goes into five major categories that make up a FICO score:

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  1. Payment history (35 percent):

According to FICO, past long-term behavior is used to forecast future long-term behavior.FICO keeps an eye on both revolving loans – such as credit cards – and installment loans, such as mortgages or student loans. Although the weight of each loan varies between individuals, FICO indicates that defaulting on a larger installment loan like a mortgage will damage a credit score more severely than defaulting on a smaller revolving loan. One of the best ways for borrowers to improve their credit score as a whole is by making consistent, timely payments.

  1. 2. Amounts owed (30 percent):

The second-most important component of your credit score is how much you owe, because a borrower should maintain low credit card balances. FICO says people with the best scores tend to average about 7 percent credit utilization ratio, but that 10 to 20 percent usage is fine. That rule of thumb applies to each individual credit card as well as the overall level of debt.As you could notice, the first two factors make up nearly two-thirds of your score. So if you pay your bills on time and do not carry big balances, you are two-thirds of the way toward a good credit score.

  1. Length of credit history(15 percent):

It is impossible for a person who is new to credit to have a perfect credit score. A longer credit history provides more information and offers a better picture of long-term financial behavior. Therefore, to improve their credit scores, individuals without a history should begin using credit, and those with credit should maintain long-standing accounts.

4.Types of credit in use (10 percent):

The final thing the FICO formula considers in determining your credit score is whether you have a mix of different types of credit, such as credit cards, store accounts, instalment loans and mortgages. It also looks at how many total accounts you have.

5.New credit (10 percent):

Your FICO score considers how many new accounts you have. It looks at how many new accounts you have applied for recently and when the last time you opened a new account was. The score assumes that if you have opened several new accounts recently, you could be a greater credit risk. People tend to open new accounts when they are experiencing cash flow problems or planning to take on lots of new debt.

Boost Your Credit Score By Upto 80 Points With These Fast Credit Repair Tips

With the economy being like it is, it is understandable for you to get behind with your bill payments even if you never have before. Unfortunately, there is no such understanding with the credit reporting companies so your credit score will still be affected. Millions of other people are right there with you watching their credit score plummet as their chances of obtaining loans and credit cards dwindle.

So, what to do? Get some fast credit repair done on your credit score with these simple steps:

  1. Get a credit card

Don’t get caught up in the vicious debt cycle in the name of boosting your credit score! All you need is one (or maybe a maximum of two) credit cards to give your credit score that much needed boost.

You can either get a regular credit card or a secured credit. The advantage with the secured one is that the bank gives you a credit line based on how much you have in your account. That way, it is sort of like a debit card. The regular credit card on the other hand doesn’t subscribe to this policy so you will negotiate your credit line based on your credit score.

To make sure that you don’t dig yourself into another hole, read all the fine print. Avoid the high penalty interest rates and other fees by paying every month on time.

  1. Minimize the use of your credit card

Regardless of your faithful payments, you need to keep the use of your credit card as low as possible. The balances on your card account to a greater percentage of your credit score than your dutiful payment, such that the larger the balance on your card, the higher your credit score. Keep your utilization as low as 20% and your credit score will be fine.

This can be hard to do if you have more than one credit card but you can stay on top of it by:

  • Setting up email or text alerts to let you know when you are approaching your personal limit.
  • Shifting your credit between your cards to ease the burden on one e.g. moving your debt from the small balance-large limit card to the large balance-low limit card where it won’t have as much impact on your credit score. Just be careful not to overload one card.
  1. Get an installment loan for fast credit repair

Addition of good credit trade line accounts with concurrent deletion of even just one bad credit account can get your credit score up by as much as 80 points. Apart from a credit card, you can get an installment loan as a good credit account to give you that boost. An installment loans shows a sense of responsibility because you will be paying for it for some time.

Consider getting this loan from your local community bank or credit union. Such will most likely give you a better loan repayment package than a larger bank.

Improving Your Credit Score By Buying A House

If you are buying a home with a mortgage from a reputable lender, your credit score is likely to already be quite good, or you would not be able to get a loan. As a first time buyer, you will suddenly appear to have many thousands of debt which you didn’t have before, so in the first month or so after taking out your mortgage, your credit score may go down. This is because of the increased indebtedness and also because – unless you only approached one lender – the inquiries made by lenders will have had their effect and driven your score downwards.

This will be only temporary, though. If you make sure that you always pay your mortgage and other repayments on time, buying a home will improve your credit score a lot. Credit ratings are not created by one single thing, so you shouldn’t just rely on the fact that you are buying your home to keep your credit score high. Applying for loans will always reduce your score temporarily as every check by a lender has a deleterious effect on your score – this isn’t a huge drop, but is a downward trend. So it is best if shopping around to just look online, rather than make an application which you then don’t follow through.

The best piece of advice when you are trying to improve your credit score is to always pay on time. You should look carefully at the small print on all of your credit card bills, loan agreements and similar paperwork to see how long a payment takes to get to the payee. Most mortgage payments are taken as a direct debit, so there should be little problem with them, but if you don’t have one set up, you should make sure you pay early if anything, because a payment made on the due day may end up taking a while to be credited, meanwhile you are shown as a late payer. Even if this is only by a day, these black marks can add up. If you can’t find out how long the processing takes, ask your lender – it is worth taking the time to check.

Some people who don’t owe anyone a penny are often disappointed to find they have a low credit rating when it comes to taking out a loan or mortgage. Essentially, someone with current credit arrangements and a good track record of payments will have a better credit score than someone who doesn’t owe anyone any money at all. If you are planning a big purchase needing a loan, it is a good idea to take out a few small loans or perhaps a credit card and being absolutely scrupulous in how you keep up payments, making them early and over the minimum when you can. This will give you a financial ‘footprint’ which a credit agency can find and put a score to – then the bigger loan will go through with less effort. Furthermore, this financial footprint will also enable you to buy a home quickly next time you are applying for a mortgage.

How to Ensure You Have a Good Credit Score

Not having a good credit score can be problematic if you want to get hold of a loan at a favourable rate of interest; credit scores are primarily worked out via your past credit history, and how much you’ve borrowed and repaid in the past. Debts that haven’t been cleared, and issues with your employment or address history can all negatively impact on your credit score. In this way, it’s worth thinking about some ways in which you can try to ensure you get a good credit score.

credit score improvement tips Regularly Check Your Score

It’s possible to ask for a copy of your credit report from the UK’s three main credit agencies – Equifax, Callcredit, and Experian – this can usually be achieved for a small fee. Looking over your report can allow you to fix any inconsistencies or mistakes that might be affecting your credit score.

Pay Off Your Credit Cards

If you can, pay off as much or all of the balance of your credit cards every month to avoid incurring charges; similarly, try not to exceed your credit limit, and take advantage of 0 % balance transfers to get better rates.

Avoid Unnecessary Loans

Don’t apply for lots of different credit at the same time, as this will show up on your credit record; similarly, pick the right loans with bad credit depending on the credibility of the company- the compounded interest charges on these loans can be very high.

Find a Guarantor

If you have bad credit, try to get a loan with a guarantor – this is a third party that assumes responsibility for repayments if you can’t make them, and is able to help you to boost your credit score by ensuring consistent loan repayments.

Don’t Make Multiple Credit Card Applications

It’s important to avoid making lots of credit card applications over a short period of time, as this can end up with a lot of rejection, and repeated, and costly checks on your record.

Avoid Joint Financing with Another Person

A joint financing approach can be a problem if you have a good credit score and they do not – bad credit by association can end up dragging both your scores down, even if you have been able to make consistent repayments elsewhere.

Get the Details Right

Make sure you update your details with credit agencies and lenders; this includes a fixed land line on top of a mobile, and updates to your employment history and living situation; being with the same bank for an extended period of time is also recommended to show that you’re in a stable position to borrow.

Get on the Electoral Roll

Another way to demonstrate your stability and ability to borrow is to get on the electoral roll; doing so will help to convince lenders that they aren’t encountering fraud, and will give you more ties to your local area.

Cancel Old Credit Cards

Any out of date credit cards should be cancelled, as they will appear on your file, even if you no longer pay into them. Check to see whether there are any outstanding cards on your record by requesting it from credit agencies.

Clear Off Any Old Debts

These debts might include anything from county court judgements to defaults on personal loans or car payments; make sure that everything is paid off that can be to avoid taking a hit on your file.

The Very Basic Credit Score Improvement Tips

Have you ever tried to shed your weight? If ‘yes’, then you must understand how frustrating it is. You are not a miser in pouring in your best effort but still the sticking out tummy shows no sign of becoming flat. Wondering why I have made a mention of flab-reducing exercises in this regard? Well, credit score improvement is sort of trying for weight loss, lots of effort but least of gain.

Some may tell you about the easy credit record improvement tools that work really fast. But never believe in such assurance. There are no ‘wonder’ tips to improve your credit score overnight. It takes time to rebuild one’s credit record and the ‘manage it responsibly’ is the password to do it the most right way. There are some credit score improvement tips following which you will get good result though not quickly but slowly over time.credit score improvement tips

Never forget to check your credit report:

Credit report checking is the most important thing to start with. Request for a copy of your credit record and you have to pay nothing out of your pocket for it. So many calculations go into calculating your credit report. There is no guarantee that it is error free. So, go through the report thoroughly and find out the errors if any. Some payments may be incorrectly input in your credit report. So make it sure that every enlisted payment is correct. In case any error has been discovered, do not delay in disputing it with the credit bureau and reporting agency. ‘Do it right now’ attitude is one the most important credit score improvement tips.

Make sure to set up reminders for payment:

If you are really that much serious to improve your credit score, then ensure on-time credit payment. If you are a forgetful person, then go for a reminder set up that most of the banks arrange nowadays. These banks remind their clients about the due date of payment via email or SMS. There is also an option of automatic payment that enables automated transfer of money from your bank account. However, as transaction happens automatically, so the purpose of making you perfect the art of money management gets lost. The idea behind the credit score improvement tips is not only about building a stellar credit status but also enabling you to handle your finances in the most efficient way.

Clear off the Debts as early as possible:

It is not easy but must to improve your credit status. Furthermore, it will also give you some satisfaction that you owe nothing to anybody. This gives a sense of relief and a peace of mind. No one is going to rap on your door to collect his dues. Go for a limited usage of your credit card. If possible, stop using it. Check your credit report which clearly mentions your dues along with account number and interest rate. Make a plan to decide how much you can afford to pay off every month. According to the credit score improvement tips, start with making a significant chunk of payment towards the highest interest credit cards. Once it is done, make minimum payment for the moderate interest credit cards.