In today’s economy, your credit score affects so many aspects of your life. Without a good one, you could have trouble getting a loan or even renting an apartment. However, understanding how to build or fix your credit score can be confusing. In this blog post, I’ll give you tips for how to improve your credit score.

Factors Of A Good Credit Score:

FICO credit scores are the standard most lenders use to determine your creditworthiness. Scores range from 300 to 850, but a good score ranges from 670 to 739. Here are the factors of a FICO score:

  1. Payment History (35%): This is the most significant factor. It reflects whether you have paid past credit accounts on time. Late payments, bankruptcies, and defaults will lower this score.
  2. Credit Utilization (30%): This measures how much of your available credit you are using. Keeping your credit card balances low compared to your credit limits is crucial for a good score.
  3. Length of Credit History (15%): A longer credit history is beneficial because it provides more data on your spending habits and repayment behavior. It includes the age of your oldest account and the average age of all your accounts.
  4. Credit Mix (10%): This refers to the variety of credit products you have, including credit cards, mortgages, auto loans, and student loans. A diverse mix can positively impact your score.
  5. New Credit Inquiries (10%): This accounts for how many new accounts you have attempted to open in recent periods. Frequent hard inquiries can negatively affect your score as they imply higher financial risk.

6 Tips to Improve Your Credit Score

  1. View Your Credit Score: Regularly checking your credit score helps you understand where you stand. Use this as a baseline to track improvements and to check for any errors in your report.
  2. Pay Your Bills on Time: Set up reminders or automatic payments to ensure you never miss a due date. Your payment history is the largest component of your credit score. Having an emergency fund can help you keep on top of your payments. 
  3. Use 30% or Less of Your Available Credit: Lower credit utilization can significantly boost your score. If you’re consistently reaching your limit, ask your creditor for an increase in your credit line—just be sure not to increase your spending.
  4. Avoid Too Many Hard Inquiries: When you apply for credit, lenders perform a “hard inquiry”. This can lower your score temporarily. Limit the number of times you apply for new credit within a short period to avoid these dips.
  5. Keep Old Credit Accounts Open: The age of your credit is important. Keep older accounts open, even if you’re not using them. This increases the average age of your accounts, which can positively affect your credit score.
  6. Have a Healthy Credit Mix: Maintain a good mix of revolving credit (like credit cards) and installment loans (such as auto loans, student loans, and mortgages). A varied credit portfolio shows lenders that you can manage different types of borrowing responsibly.

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