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Understanding Your Credit Score

Repair your creditIf you’re trying to perfect your credit score, it’s important to first understand what makes up your credit report and your credit score. Your credit score is determined by an advanced algorithm that was developed by FICO and pulls data from your credit report to determine your score. When calculating your credit score, the following information will affect your credit score in corresponding percentages:

  • 35%: History of on-time or late credit payments.
  • 30 % : Credit available on your open credit cards
  • 15 percent: The age of your lines of credit (old = good)
  • 10 percent: How often you apply for new credit.
  • 10 percent: Variable factors, such as the types of open credit lines you have

A lot of it can be common sense or information you’ve already learned over time, which translates to a good credit score, but maybe not a perfect score. If you have bad credit, it might take a lot of time and work to get your rating up and you might want to consider repairing your credit first. If your credit score is already over 700 but you’re trying to hit that perfect score of 850 to secure the best deals and interest rates, here are 5 ways to perfect your credit score:

5 Ways to Get a Higher Credit Score

1. Maintain debt-to-limit ratio

To increase your credit score, it is recommended to keep your debt ratio below 30% and, if possible, as low as 10%. The debt-to-limit ratio is the difference between the amount you owe on a credit card and the amount of your credit limit. For example, if one of your credit cards has a credit limit of $5,000, you should always keep the balance below $1,500, but preferably around $500. As you can see above, 30% of your credit score is determined by the available credit on your open credit cards, so maintaining the debt to limit ratio will increase your available credit and also show that you are responsible for your credit.

2. Keep your credit cards active

Be sure to use your cards at least once a year to keep them showing as “active” credit and make sure you never cancel your credit cards. 15% of your credit score is determined by the age of your lines of credit, so you should always keep your credit cards active to lengthen the age of your line of credit. Many people tend to cancel cards they no longer use – often because the rates aren’t great or because they have another card with better benefits – but even if you don’t use the cards very often (once a year is fine), you should keep them active. Typically, someone with a credit score above 800 has lines of credit with at least 10 years of positive activity.

3. Always pay your bills on time

The most well-known factor in a credit score and the factor that has the biggest impact on your credit score (35% of your score) is probably your history of paying your credit payments on time. If you are in the habit of always making your credit card, mortgage and car payments on time, you will improve your credit score significantly. It can also have a negative effect if you ever make a late payment. Unfortunately, it only takes one late payment to drastically lower your credit score, so it’s crucial that you make sure you always make your credit payments on time.

4. Dispute errors on your credit report

If you don’t already, be sure to request a copy of your credit report once a year and review it for errors. It’s actually quite common for credit reports to contain errors that can be disputed and potentially allow you to have negative items removed from your credit report. If, for example, your credit report showed a late payment on a credit card but had errors on file, you can dispute the negative item and request that it be removed from your report. Removing a negative item, like a late payment, from your report can dramatically improve your credit score. While disputing errors on your credit report can be tedious and time-consuming, it’s usually worth the effort. Another option would be to contact a credit repair agency to help you dispute any negative items on your credit report.

5. Reduce the number of credit inquiries

Although it only affects 10% of your credit score, reducing the number of credit inquiries can still help establish that perfect credit score, but it is often overlooked. You should never have more than one credit check per year, but many people don’t realize how often this is done and often have their credit checked more than once a year. If you’re applying for a car loan, checking your credit score online, or applying for a new credit card, this type of action will almost always result in a credit inquiry and should be avoided if you’ve had a credit inquiry earlier. during this year. Be sure to do your research on what will trigger a credit check so you don’t accidentally have more than one a year without realizing it.

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