Everyone wants a good credit score, it is the key to loan and credit card approval, higher loan amounts, and attractive interest rates. To achieve a good credit score, which according to Experian, one of the three major credit bureaus, is a score of 700 or above, you must be credit worthy. Your creditworthiness is a measure of how well you manage your debts. The credit bureaus, Experian, Equifax, and TransUnion are data collection agencies that gather your account information from various creditors and provide that information to a consumer reporting agency in the United States. Each credit bureau calculates your credit score based on an assessment of your credit history.
A credit score is based on the following five factors, according to Fair Isaac Corporation, a data analytics company focused on credit scoring services, and utilized by the credit bureaus.
1. 35% of your score is based on your payment history. This is an indicator of whether you make payments on time and how often you make payments. Payments over 30 days late will typically be reported by your lender and hurt your credit scores. The higher your proportion of on-time payments, the higher your credit score. Every time you miss a payment, you negatively impact your score.
2. 30% of your credit score is based on outstanding loan balances and credit cards. This is based on the entire amount you owe, the number and types of credit you have, and the proportion of money owed compared to how much credit you have available. High balances and maxed-out credit cards will lower your credit score; however, if you pay smaller balances on time, it can raise it.
3. 15% of you score is based on the length of your credit history. The longer your history of making timely payments, the higher your score will be. Credit scoring models generally look at the average age of your credit when factoring in credit history.
4. 10% of your score is based on the types of credit accounts you have. Having a mix of secured and unsecured debt, including installment loans, home loans, and retail and credit cards might help improve your score.
5. The final 10% is made up of recent credit activity. If you opened a lot of accounts recently or applied to open accounts, it might suggest you are undergoing financial trouble and could lower your score. However, shopping for a loan is not considered risky and should not negatively impact your credit score.
The best way to improve your credit score is to use loans and credit cards responsibly and make timely payments. The more your credit history shows that you are doing this over time, the more willing lenders will be to offer you credit at a competitive rate.
If you find yourself struggling with debt, including credit cards, installment, and payday loans, you can always contact the Progressive Debt Relief account managers at 877.590.1847 or through our contact form.
