Credit affects so much in your life, and although we dislike the idea of debt, having a good credit score can save you money with insurance, utility deposits, car rental, mortgage loans and more, says orlando property manager Oliver Overton-Morgan with Morgan Property Solutions.
You can always take steps to improve your score and change the way lenders view your credit. We’ve listed the five main categories of information that the FICO score evaluates, along with their approximate weightings and the fastest ways to improve your score. Your credit score is constantly changing to give lenders an accurate picture of where you are right now financially.
35% Credit Payment History
Pay all your bills precisely on time. This is the number one thing you can do to positively improve your FICO score.
30% Outstanding Credit Balances
Keep your balances on all of your credit cards as low as possible. This means you need to pay off as much as you can afford to keep your ratio of outstanding balance to total available credit low. Maintaining a high balance or maxing out credit cards can be a red flag to credit evaluators.
15% Extent of Credit History
Credit accounts that you have regularly paid off and have a lengthy, clean history will help your score. Research shows that consumers with longer credit history have a lower risk of default than those with shorter credit histories.
10% Opening New Credit Accounts & Inquiries
Opening a new credit account should not harm your credit score dramatically. However, opening several in a short period of time can negatively impact your score.
Too many credit inquiries could negatively affect your credit score. Every time you apply for a credit card, an auto loan or a mortgage; an “inquiry” is made. Generating many credit inquiries could imply that you are being turned down by lenders and have to re-apply elsewhere. Therefore, when you need to apply for credit for an auto or mortgage loan, do your shopping within a short time period. FICO scores usually identify a group of inquiries as rate shopping and will only count the group as one inquiry.
Don’t close unused cards to try and raise your score. This may actually hurt your score since it will cause your ratio of balance to available credit to increase.
10% Types of Credit
It is good to have a mix of credit products. Whether they are credit cards, installment loans, automobile loans or a mortgage. Having a healthy mix will increase your score. Although, having too much of one could be detrimental.
When making a large credit purchase such as Buying A House – DO NOT OPEN ANY NEW LINES OF CREDIT DURING YOUR LOAN APPLICATION!
Lenders often perform a second Credit check on you on closing day to ensure that your credit score has not changed. Your score may lower and you may be denied… BE CAREFUL!!
How can I get a free credit report?
Check your credit report each year for errors and to see how your profile looks to creditors. US residents are eligible to obtain a free copy of their credit report once every 12 months from each of the three major credit reporting agencies. The actual credit “score” is an additional nominal fee but your are not required to purchase.
To order your free reports, go to www.annualcreditreport.com where you can order your reports directly or download the Annual Credit Report Request form to mail in your request. You can also call 1-877-322-8228.
You are also entitled to a free copy of your credit report if you are unemployed and/or receiving welfare.