Your credit score can force you to pay thousands of dollars or save you thousands of dollars a year.
It is a three digit number that has a huge influence on your life.
The credit bureaus all use a mathematical algorithm to determine your score.
They keep this algorithm secret from the public.
The reason is that they do not want people to be able to use that information to ensure a good credit score.
We would think the credit bureaus would be fine with you ensuring your credit is good.
However the credit bureaus earn their revenue from lenders.
Lenders want people to have damaged credit because they then have an excuse to charge a higher interest rate.
These are the five influencing factors on your score.
You will also find approximately how much each factor impacts your score.
1.
Payment History (40%) This is very important.
On your credit report it reflects your credit limit, credit balance, minimum payment and payments received.
If you have a credit card that is always at the limit then this will hurt your score.
But if you can make big payments on this account it can help your score.
Negative items fall into this category.
You should remove any negative items.
This is accomplished by settling the debt or disputing the accuracy or validity of the item.
I suggest trying to dispute the listing first.
If the listing is verified then settle with the lender and in exchange for your payment get them to agree in writing to remove the negative listing from your credit report.
2.
Ratio of Credit to Debt (30%) This is how much credit is available to you that is not being used.
Is your credit card at the credit limit? If you can show the credit bureaus that you have available credit it will help your score.
I suggest keeping a credit card balance at 10% of your limit.
This helps because you are showing that you use your credit and you use it responsibly.
3.
Pursuit of New Lines of Credit.
(10%) How frequently is your credit checked? If it appears that your credit is being checked constantly then your score will be negatively impacted.
Your credit report shows how often your credit is run.
Thus you should not trade in your automobile every 3 months or constantly make purchases requiring a credit check.
The credit bureaus expect to see some inquires for your report.
Just try to avoid making a lot of purchases using your credit.
There are people that switch phone plans and buy cars multiple times in a year and this will hurt your score.
4.
Credit Experience (10%) You should not worry about impacting this factor.
It simply shows what type of purchases you have made.
This means what have you used your credit to buy.
Do you have a mortgage, a car loan, credit cards, and etc? They say the more diverse it is the better, however it does not carry much weight in the equation.
5.
Length of Credit (10%) How long has your credit been in use? Did you just recently make your first purchase with your credit? Do not worry about this factor.
If you are new to the world of credit you can still have a great score.
In sum, these five factors are used to calculate your score.
You should only worry about the first two factors.
If you make sure the first two factors are good then your credit score will be good.
With a good score you will receive the benefit of getting automatic approval, low interest, and rewards for using your credit.