How To Improve Your Credit Score
Your credit score largely determines the percentage rate you pay for credit cards, auto loans or any other type of loan. There are specific actions that you can take to improve your score and therefore your credit rating. Let’s start by understanding the credit process and what components determine your credit score.
There are currently 3 bureaus that keep track of your credit:
1) |
Experian |
2) |
Trans Union |
3) |
Equifax |
When you apply for a loan, the lender will typically access a “merged credit report” which contains data from each of the 3 credit bureaus. The credit scores range from 350 to 850 and the merged credit report will contain 3 credit scores (one from each bureau). Lenders will typically disregard the highest and the lowest of the scores and use the remaining score to determine your credit risk. For example: Assume the scores are 745, 762 and 750; the lender will use 750 as your score. The variations in score are due to different data being reported by the 3 bureaus.
There are 5 components which make up the score:
| 1) |
35% of the score is determined by your payment history |
| 2) |
30% of the score is determined by the ratio of the balance vs. the credit limit |
| 3) |
15% of the score is determined by the length of time the accounts have been opened |
| 4) |
10% of the score is determined by the type of credit (car loans, Mortgages, credit cards, etc.) |
| 5) |
10% of the score is determined by credit inquiries. |
Correct management of each of the 5 components will improve your credit score.
If you want to know what specific actions you should take to improve your individual score feel free to contact us. As a free service to you, we will gladly analyze your credit report and determine what needs to be done. If you wish to learn about a new proposed credit scoring system, please click here.
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