Credit
scores can be a complicated topic to understand. Luckily, this blog is here to
break it down for you in an easy-to-read format.
If
you're looking for credit score advice or tips about how to improve your score,
then read on. This blog post will guide you through the components of what a
credit score included is and how you can raise yours!
Top 5 Fundamentals That Affect Your Credit Score
Payment
history (35% of score): It is no secret that
the credit score system in America has been broken for years. The current
system favors those with high incomes and low debt while disadvantaging those
who live paycheck to paycheck and are unable to pay off their balances each month
due to high-interest rates on their revolving accounts. Credit scores
have become an economic indicator of class, as the majority of Americans are
not able to afford a home or car because they cannot maintain good credit
scores over time.
Amounts
owed (30%): The amount of debt you have
affects your credit score. If I owe $5,000 in student loans and another $1,500
on my car loan, the total is only $6,500 which sounds like a reasonable amount
for someone with a good job. But when I take out a mortgage or open up a new
credit card it will show up as an inquiry to the credit bureau so that
increases my debt to over 7% of the available limit ratio (AOLR). So when your
credit score is calculated then the Amounts owed are an important factor.
Length
of credit history (15%): Credit scores are an
important aspect of personal finance, and the length of credit history is a factor
that can affect your score. One way to increase the length of your credit
history is by opening new accounts with companies you already do business with,
such as car insurance providers or utility companies.
Credit
mix (10%): Your credit mix is the variety of
types of accounts on your credit report. It can include installment loans like
mortgages, car payments, and student loans; revolving debt like a credit card or
home equity loan; and savings balances. The more you have in each category, the
better your score will be.
For example, if you have four mortgage loans but no revolving debt — that's good
for your score. If you only have one type of account with high balances — say a
few car payments totaling $10,000 — that could hurt your score because it makes
up most of what's reported to the bureaus about you.
New
credit (10%): A credit score is an
important number in determining one's ability to obtain loans, find employment
and rent an apartment. It also affects the interest rate that people are
charged when they're applying for a loan or seeking a job. The higher your
credit score, the better your chances of getting approved for those things you
need most and avoiding high interest rates.
A credit score is a number that represents your creditworthiness and how likely
you are to repay debt. Your credit history, types of accounts, payment habits,
outstanding debt balance, and length of time with the same lender all factor
into your score.
Your
FICO Score measures the likelihood that you'll default on a loan based on these
factors.
Credit
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