By Lauren Gillinov, Hathaway Brown
If you’re applying for a credit card, a mortgage, or even a job, your credit score is an important number that will be taken into consideration. Your credit score tells people how likely you are to pay back your debts, and helps creditors decide whether they trust you to pay back the money they lend you. Having a good credit score can help you get what you want and save money. Before learning how to improve your credit score, it is important to understand exactly what it is.
What exactly is a credit score?
Your credit score is a number that represents your creditworthiness. Lenders look at this number to assess risks involved with loaning money to people. Your credit score has a big impact- it determines if you qualify for a loan, what interest rate your loan will have, and what your credit limit will be. There are different methods of calculating credit scores, but the most widely used score is FICO, which stands for the ‘Fair Isaac Corporation’, the company that developed the method to compute the score. FICO scores range from 300 to 850, and the higher your score is, the better. Generally, a score above 650 indicates a good credit score.
So, how can you improve your credit score?
Here are 5 ways to raise your credit score.
Make your payments on time
Your payment history counts for 35% of your FICO score.
Pay off your debt
Having low levels of debt can increase your FICO score, as 30% of the score is based on your amounts owed.
Don’t max out your credit card
Another part of your credit score is your amounts owed. Keeping your credit card below its limit shows responsibility for not spending more than you have.
Keep your accounts for as long as you can
The length of your credit history counts for 15% of your FICO score. Additionally, staying with your current credit is a good idea because when you apply for new credit, there is a credit inquiry, which can lower your score. New credit accounts for 10% of your credit score as well.
Diversify your credit
Having many types of credit accounts helps you keep a higher credit score, and counts for 10% of your FICO score.
Follow these tips and you will improve your credit score significantly. This means you will be more likely to get the loans you apply for and at lower interest rates. Have fun watching your credit score go up and save money at the same time!