Layman’s Guide To Rebuilding Your Credit

The majority of the consumers are never able to give a straight answer on how to increase their credit score. When you are apply for any type of loan, lenders will check credit scores and judge your credit worthiness. There are many people who don’t have a deeper understanding about the credit score and how essential it is. It is important that you know the different information about the credit loan for you to have a better understanding about the matter. Credit score monitoring is the easiest way to stay on top of your numbers and prevent them for costing you money.

Where does your credit score come from?

credit score range

There are lots of people who don’t know where the credit score originated. Actually, your credit score is basically from your own credit report. The credit report is developed and created by three essential credit bureaus. The credit report contains information about your own history payments, you loan amounts, your debts, and some other essential information. The three essential bureaus will use this information from your own credit report in order to calculate and check your scores. The bureaus are using the FICO system of scoring which basically ranges from three hundred to eight hundred fifty.

The Five Essential Components

1) Payment history – It refers to your ability to pay bills in a timely manner and it represents thirty five percent from your credit score. You credit history is considered as the essential indicator and determinants of your financial behavior intended for future use. One of the most factors that will negatively affect your credit score are late payments, loan defaults, missed payments, bankruptcy, and unpaid taxes.

2) Outstanding Balances – It represents 30 percent from your own credit score. It basically refers to amounts of your debts in comparison to your own credit limits.

3) Credit Age – It represents 15 percent of your credit score. If you have a longer excellent credit history, you will have a better score.

4) Recent Applications – the application of new credit basically represents 10 percent of your score. An inquiry will be added into your report each time you go for a new credit. This kind of inquiry can hurt your credit score because it states that you need more money.

5) Credit Types – The different credit types you have basically represents 10 percent from your score. It is actually good for you to have various and different credit types because it will show the different lenders that you are experienced enough to manage various credit accounts.

It is important to take into careful consideration all these parts of your credit score for you to have a better understanding regarding the matter. These are highly essential especially if you want to know how to increase credit score.
How to improve or increase the credit score?

Credit Score Basics

Your credit score is a three digit number; the lenders use these numbers to know your capacity in meeting financial obligations just like mortgage payments, bills for credit cards, car payments, loan repayment, and many more. These digits will tell the lenders how capable you are in paying off your debts. Usually, these numbers are from 300 to 850. If you have a higher credit score, you will be less risky to the different lenders. And if you are less risky, you will get better rates of interest. In addition, if you have a higher credit score, you will have better chances in getting the loan you need. Thus, if you want to experience these benefits, you should consider trying to have a higher credit score. You need to take into careful consideration the different ways on how to increase credit score for you to be able to avoid higher interest rates.

How To Increase Your Credit Score

Improving the credit score is never an easy job for majority of the people actually it takes some time, patience, and money but in the end all your efforts will be worth it. Below are some tips and suggestion for you to improve and increase your credit score.

1. Pay all your bills in a timely manner; paying on time will definitely increase your credit score. This tip is definitely obvious, but still lots of people are taking it for granted. Never underestimate the importance of paying on time, for your credit score depends on this. Most lenders will want to know how you paid your bills from your part transactions; they want to know if you’re diligent enough in paying your obligations and debts. Delinquent collections and payments can negatively affect your credit score, thus make sure you are paying your debts on time.

2. It is important that you keep your balances in your credit card as low as possible. High outstanding bills or debts can negatively affect your credit score. If you have maxed out credit cards then you will most likely lower your credit score by seventy points. Thus, instead of having to max out one card, you can consider transferring your balance from that card to other credit cards. In this way, you can balance your credit card at a low level of 25 percent or even below that percentage. Thus, paying all your obligations and debts can definitely increase your credit score.

3. Never close those paid off accounts because closing your old accounts will reduce the total of your available credit. This in turn will change the utilization ration, and this may also lower your credit score. Also, shutting down previous credit accounts will shorten credit history, so avoid doing it. If you do this your credit score will be less worthy. Don’t let your credit score drop.

4. If possible, get some smaller loans. In order for you to be qualified for bigger loans for the future, you have to improve your credit history and establish it as good as possible. Acquiring debts is one quick way for you to start to raise your credit score.

You should take into careful consideration the above mentioned information if you want to know how to increase credit score.