3 Easy Steps To Credit Score Basics
Whenever you try to repair or change something, Grandma’s are known to say that you should back to the basics. The same advice holds true for how to improve credit scores, just follow the basics. So in 3 easy steps we at going to talk about credit score basics.
Step #1 – Order Your Free Credit Reports
You can get a free credit report one time every year. Each of the three national credit reporting agencies offer a free credit report to consumers on an annual basis. You just need to make the call. You can contact these credit reporting agencies at their websites or by calling their toll-free numbers; both are convenient. It does not cost you one penny to check out your credit score once a year. And if you are following credit score basics, you will take the time to do it. Why? Because your credit score determines how much money you get to keep in your pocket. A low credit score is bad news on your wallet.
One thing to check for is the accuracy of the information on your credit reports. You could have a low credit score due to no fault of your own, but due to reporting errors. The actual credit reporting agencies are not responsible for any errors on your credit report. These credit agencies are only responsible for reporting the data they receive from creditors. The agencies are not responsible for correcting that data.
Step #2 – Learn How To Read Your Credit Reports
Your credit score is calculated from credit data taken from your credit report. That’s why it makes perfect sense to learn how to read your credit report. Let’s review credit score basics as it relates to your credit report data.
Credit Report Data
Your Payment History (35%)
This category is the most important one, it makes up 35% of your credit score. Your payment history is made up of a long list that includes credit card payments, installment loans, mortgage payments, bankruptcies, judgements, liens, collection accounts. It takes into consideration your timeliness in paying your bills. With the bulk of your credit score (35%) riding on bill payment, it is very important to pay your bills on time. Even if you just pay the minimum amount due, still pay that amount on time.
How Much You Owe (30%)
This category makes up 30% of your credit score. It takes into account the size of your debt. It counts how much you owe on all of your accounts. How many accounts you have credit balances on. And the size of your credit limits compared to credit balances. Thirty percent is a large percentage to account for. It is in your own best interest to keep your debt balances low.
The Length of Your Credit History (15%)
Fifteen percent of your credit score is determined by the amount of time you have held credit accounts. Also, the amount of time since there was activity on those accounts is factored in.
The Number of New Credit Accounts (10%)
This category is 10% which is not a large portion of your credit score, but it’s still worth understanding what the category is all about. This category analyzes the number of new credit accounts you have opened and the number of credit inquiries made. To help your credit score, it’s best to keep the number of credit cards to a small amount.
Step # 3 – Monitor Your Financial Habits
Credit score basics are simple if you have good financial habits. Your financial habits can improve your credit scores or drop them. That all just depends on what kind of financial habits you have. The best way to improve your credit scores is to work on the two financial habits that affect your credit scores the most, amounts owed and payment history.
What You Owe
When working on the amounts owed watch what you spend money on. Focus on buying based on your needs instead of your wants. We get ourselves in trouble when we buy things we want and do not really need. When we buy what we want, we have a tendency to over spend, increase our debt and wreak havoc with our credit scores.
If you want to work on your payment history, keep credit card balances small. Limit your credit card purchases to balances that you can pay off on a monthly basis. Otherwise you damage your credit scores with large credit balances. Plus you waste your money on credit card balance interest.
In the end, you are responsible for your financial habits. If you are not happy with your current habits and want to change, start with an easy habit. Once you have kicked that bad habit, pick another financial habit to change. Take it step by step. Do not be too hard on yourself, ease into changing. If you push yourself too hard, you may become frustrated and stop trying. But if you go slow and make some basic, easy changes and are successful, you will be more likely to continue. Get started, you will be glad you did.