Why You Want A Good Credit Score
Want to save money? Who doesn’t, right? Take the time to improve your credit score and you will.
Your entire financial well-being is affected by your credit score. Your scores are used to determine how much you pay for goods and services and in some cases whether or not companies will even work with you at all. With a good credit score you can save money on your rent or mortgage, insurance premiums, auto and student loans, utility bills and credit card interest rates. It sounds like learning about ways to improve credit scores can be a good thing, doesn’t it? It’s better than good, improving your credit score is a great thing.
Understanding The Break Down
To save the most money, you would want the highest credit score you can possibly get. If you can get your score up to 800, yahoo, but getting it into the upper 700’s is just as good. Once your score starts dropping below 400 or 500, you lose credibility. And once that credibility is lost, it’s hard to get back The best way to work on improving your credit scores is to understand the breakdown of those scores. And then you can work on the areas that need improvement. But start small. Do not overwhelm your efforts by trying to change your entire credit history at one time. Because then you may get frustrated and just go back to your old habits. So let’s take a look at what makes up your credit score.
Your Payment History (35%)
Your payment history makes up the largest portion of a score, 35% of your credit score is based on your payment history. Which means that the way you handle your payments either damages or improves your score. It’s easy to talk about being diligent about making your payments on time, but maybe a bit harder to achieve. So pick one. If you find yourself making late payments or skipping them, and are always past due, start small, don’t try to change everything at once.
- Late payments
- Skipped payments
- Past dues payments.
- Delinquent accounts sent to collection agencies can damage your credit scores for up to 7 years
Your Credit Limits|Credit Utilization (30%)
Your credit to debt ratio makes up the second largest chunk of your credit score, 30% of your credit score is based on this ratio. Creditors look at your credit limits compared to the amount of debt you carry. The best way to improve this category is to charge less than 35% of your credit limits. In other words, if your credit card limit is $10,000, charge less than $3,500. This may be a category that is easier to fix that some of the others. You just have to keep your credit card purchases in check. Once you hit that 30% mark, pay in cash.
The Length Of Your Credit History (15%)
Creditors look at the length of time since your accounts were opened and the amount of time since there was activity on the account. The longer you have been using credit, the better. This length of credit history makes up 15% of your score. That is not a high percentage, but don’t take it for granted either, it all adds up. You can help this category by keeping the number of new credit card accounts you open to a minimum. The way to help yourself improve this category is by avoiding all of those tempting promotions put out there by credit card companies. These companies promise you exciting gifts and trips which make it easy to be tempted to open lots of credit cards, but in the end, it’s your score that gets damaged.
Your Account Mix (10%)
The types of credit you have makes up 10% of your credit score. Again, not a large percentage, but still it is a consideration that creditors use to evaluate you. If you have a variety of credit accounts you are showing creditors that you are good at managing different types of credit and payments.
- Credit cards
- Car loans, student loans
- Mortgage loans
- Installment loans
Save Money Bit by Bit
You may not believe that a simple 3 digit number called a credit score is that important, but it is. That number is used to evaluate you and your creditworthiness. Back in the day, credit scores were not used as a financial tool. But nowadays with information so easily accessible, credit scores have become a valuable financial tool. Even employers use them to evaluate potential employments candidates. If you have a high credit score, you are considered trustworthy, and like it or not, a low score makes you less trustworthy. We don’t have to like it, we just have to accept that it is a sign of the times, credit scores matter.