5 Essentials to build or fix your credit score
Credit score is an important personal financial figure to determine your credit risk before getting a credit card, a loan, or a mortgage and especially how much interest you would pay if you do.
Normally you would have more than 1 credit score due to various merchants, issuers and credit-reporting agencies. Here you should know about FICO score — the oldest credit-scoring system to get how credit score affect your pocket.
How FICO score impact your mortgage interest rate?
760–850 score: 6.26%
700–759 score: 6.48%
680–699 score: 6.77%
620–659 score: 7.58%
580–619 score: 9.45%
500–579 score: 10.31%
Which factors impact?
- Your payment history: whether you pay your bill on time?
- Your utilization rate: how much of your total available credit did you use?
- Your current owe
- Whether you had any new credit
- How long your credit have gone.
FICO defines how each factor weighs in calculating your score:
- Payment history : 35%
- Amount owe (current owe and utilization rate): 30%
- Length of credit history: 15%
- How many new accounts you’ve got: 10%
- Sort of credit: 10%
#1 Build Your Credit Score by Paying On Time
This is the biggest piece of score and you can be easy to fix it by reminding the payment date on your calendar/ smartphone. In case, you can’t manage to pay it on time due being lack of fund, you might ask for helps from relatives with a 0% interest loan.
In event, you have a bad payment history, you have to start build a better credit manner from today to repair it because it takes 35% of a score meaning it will take several (7 to 10) years to clear your negative information.
#2 Strengthen Your Credit Score by Paying Down High Balance
This aims to the 2nd factor, amounts owe. Basically, you can control it yourself. In fact, there is no lenders not loving the borrowers reducing the debt. Paying all you owe or as much as possible definitely is a instant positive impact on your credit score.
#3 Improve Your Credit Score by Not Inquiring Many
To credit-scoring agencies, a sudden inquiries is a sign of danger in your credit status. FICO score, for example, plays a rule that people with six or more inquiries on their credit report are up to 8 times more likely to bankruptcy than people with none. So you shouldn’t ask for credit report too frequently or not in a fixed schedule, and take care of auto dealerships or financial institutions run your credit.
#4 Not Decrease Your Credit Score by Closing or Open New Accounts
Just open new credit accounts when you need only. A bigger credit doesn’t sound like you’re safe in lenders’ eyes in fact they will judge you as drowning into credit and shaking.
“So I should close some accounts, right?”
Answer: NOT REALLY! Since one big factor is utilization rate, you close an account meaning your utilization rate will increase and drain your score. For instance, you have 2 credit cards with a credit limit of 2,000 USD each and you owe 1,000 USD — your utilization rate = 1000/4000= 25%. Should you close one account, your new utilization rate = 1000/2000 = 50% — a worse point.
The best practice is to monitor your credit mix and utilization rate a choose a best number as possible before you decide closing any credit card.
#5 Monitor Your Credit Report
You can get a free copy of your credit report at: www.annualcreditreport.com
You should inquire your report in every 4 months and find out all mistakes in certain time and start to fix it throughout.
