Your can increase your credit score, the speed at which you increase it will be determined based on where you place your effort. Most lenders use your credit score for any kind of loan. If you have a low credit score you could get charged double digit interest rates. It could be the difference between affording the dream home or financially struggling.
How is a credit score calculated ?
In order to understand how to increase your credit score, you need to first understand how a credit score is calculated. Your credit score is comprised of your payment history, credit history, credit usage, total balances, credit check and available credit. All of these are important but they do not hold equal weight.
For instance your payment history is about 35% responsible for your credit score. If you are late or have items in collections resolving these issues will bring your score up significantly.
The second and third factors are length of credit history and amount owed. The length of credit history accounts for 15% of your credit score. The more bad history you have, the more you have to follow it with good on time non delinquent payments. This is part of your credit score you will have a difficult time changing. The good will eventually outweigh the bad history. It will take 7 years for old/bad history to drop from your credit report.
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Amounts owed is 30% of your score. This is something you can easily control. Try to pay your credit cards in full every month. If you have a hard time doing that try to keep your utilization below 35%. This means if you have a 10,000 limit do not use more than 3,500. If by chance you exceed that before the statement cute off date hits, pay down the amount. Make sure you do not overuse one credit card.
New credit accounts for 10% of your score. The younger or newer your debt the lower your score will be. The age will be averaged. If you have two loans you applied for 10 years ago and add two new accounts today. Your credit length will be 5 years. If you do not apply for the new cards, the average will be 10 years.
Credit mix is the last factor. This shows the variety of your loans. The more diversity you have the better. Mix it up with car, credit card, student and mortgage loans.
Bonus-If you increase your income, you can increase your credit limit. This will allow you to increase your credit score.
What credit score is considered good ?
The ultimate credit score is 850. It is nearly impossible to achieve this but anything above a 750 will put you in good terms with any lender.
