Your credit score plays an important role in your financial life. It’s something that financial institutions take into account when deciding your loan rates, credit card interest rates, and insurance premiums, among other things. This makes it important for you to keep an eye on your credit score.
How Is Your Credit Score Calculated?
Before you work on improving your credit score, it’s important to know how your score is calculated. Your credit score is made up of your payment history (which accounts for 35% of your total score), debts owed (30% of your credit score), the total length of your credit history (15% of your credit score), credit mix (10% of your credit score), and new credit (10% of your credit score). So, to improve your score, it’s important that you work on the various aspects that make up your credit score.
Tips To Improve Your Credit Score
- Don’t Default On Bill Payments: Lenders report your payment defaults to the credit bureaus, which cause your score to dip. To avoid this, ensure you pay your bills on time.
- Decrease Your Credit Utilization: A high credit utilization affects your credit score negatively. So, if you have some additional money saved up, you may want to consider repaying your debts or credit card balances with it.
- Avoid Opening New Credit Accounts: While a well-diversified credit mix contributes positively toward your score, avoid opening new credit accounts solely for this reason. Remember that creditors will perform a hard inquiry into your credit score each time you apply for a new credit card or loan, which, in turn, will negatively affect your credit score.
- Check Your Credit Reports: Don’t assume that all the details on your credit reports are accurate. Make sure to check for any inaccuracies that may be pulling your score down. If you do spot any errors, you should dispute it immediately with the credit reporting bureau.
- Keep Unused Credit Card Accounts Open: Closing unused credit card accounts will bring down the total length of your credit history and also increase your credit utilization.
So, if your credit score isn’t in the best shape, make sure to put these tips into practice!
