Your credit score highlights your credit usage at a specific point in time. Credit scores are produced in a three digit format.
This number forecasts how likely a person is to meet their payment obligations and make payments on time. A good credit score will ease many financial transactions that you will encounter and save you money on having lower interest rates for credit cards, loans, home loans and other forms of credit. Therefore your credit score plays a pivotal role in your overall financial health.
When assessing your credit score some institutions may differ in criteria. However, in most cases credit scores are based on five specific areas of data in your credit report, which are combined to form your total credit score. Firstly, your payment history makes up 35 per cent of your overall score. The most important factor with regards to your payment history is how you have paid your bills in the past, with priority being placed on recent payment activity.
Amounts owed are the second largest contributor, with 30 per cent contributing to your overall credit score.
Your credit score may be lowered if you owe too much or if you have credit cards that will soon have its maximum limit reached. The length of your credit history constitutes for 15 per cent of your total credit score. Customarily, a longer credit history is better. New credit and types of credit in use, equally contribute 10 per cent each to your credit score. Your score is lower if you tend to open multiple new accounts in a short period of time. With regards to types of credit in use, the best scores have a mix of both revolving credit, such as credit cards, and instalment credit, such as mortgages and car loans.
Your credit score is a flexible number and changes with the addition, removal or any changes of information within your credit report. Raising your score requires time and patience and there are some useful steps you can take to ensure you get a better rating for the future. Firstly you need to check your credit report continuously to make sure that all the information is accurate. Ensure that your bills are paid on time, especially mortgage or rent payments. Ideally your credit card and other account balances should be below 75% of your available credit therefore you need to keep your balances low on credit cards.
Hefty credit card balances hurt your pockets and is detrimental to your credit score therefore it is always a good idea to pay a little more than the minimum required payment on your credit card. If you have missed any payments, it is imperative that you get up-to-date and stay current on your payment schedule. The longer you pay your bills on time, the better your credit score.
Most consumers overlook the fact that applying for and opening new credit accounts tends to affects your credit score negatively and lowers your score. These credit accounts should be opened only if needed as oppose to opening credit accounts to merely have a better credit mix. The most important tip to get a better credit score for the future is to pay off debt rather than moving it around or creating more debt as you go along in life.
In today’s digital economy, your credit history and credit score are vital pieces of information that are crucial to helping you secure your financial life. The good news is that no matter where your credit score is today, there are a number of different steps you can take now that can change your credit history and help impact your credit score. You should take all the necessary steps you can to help establish a good credit score.