Credit Score Basics Everyone Should Know
A credit score, also known as a FICO score, is a very important number that says a lot about an individual. It effects the ability to secure loans and credit, the interest rate that lenders will charge, the rate an individual pays for car insurance, even the ability to secure things like cell phone and television services.
The importance, then, of maintaining a high credit score becomes very serious.
But what if there are a few problems on a person's credit? How can a credit score be increased?
The credit bureaus look at five areas when determining a credit score: payment history, total amount owed, length of credit, type of credit, and new credit. A few simple steps to improve these categories can positively effect a credit score.
- The area with the largest effect on a credit score is credit history. Even making a single late payment can dramatically, negatively effect a credit score. The best way to improve a credit score is to make credit payments on time, every time.
- Keep the level of credit in check. Having too much credit is a major red flag to a credit reporting agency. To improve a credit score pay down debt, particularly revolving unsecured loans like credit cards. Then simply do not use these cards again until total debt is down and under control.
- To improve a credit score keep those older loans and lines open. Having established credit is very important to a potential creditor, and knowing that they can rely upon a long term relationship lifts a credit score.
- A credit report will also measure the types of credit that a consumer uses. Since a credit score is a measure of overall credit worthiness the score itself is influenced by the types of debt that a person uses. If all of the debt is in unsecured loans this may prove a red flag to potential lenders, indicating inexperience with revolving debt or potential lose since everything is unsecured. Generally, a good mix of various loan types is desirable.
Adding new credit often is also a detriment to a credit score. To increase a credit score do not apply for new credit often, even if that means loosing out on a 10% off deal at a local retailer. That discount could hurt your credit score or keep your score from improving.
Credit scores are a vital record of credit worthiness in today's society. Increasing a credit score is not always easy, nor is it always a short process, but it can be done. Keep track of the five areas that a credit score measures and demonstrate prudence in the way credit is handled and managed and the credit score will rise.
