Money talks, but good credit can sing—like 90s diva, sing. But while everyone wants to have a good credit score, it’s not always easy to manage. This can be down to a variety of reasons. Life is unpredictable, and sometimes our credit score takes a hit.
But if you are tactical about it, there are a number of ways you can give your credit score a boost. And the best place to start is by understanding how it works. So let’s take a look at the system (we promise you won’t have to do any math!)
Your credit score is a three digit number. Most of the time it’s between 300-850. It’s calculated using the FICO model, which combines five factors, each of which gets a different weighting in the formula. The five factors are:
35% of your credit score comes down to how good you are at making payments on time. Paying on time is great. Late payments are bad—and the longer you take to pay missed payments, the bigger the impact on your credit score.
how much is owed
30% of your credit score is based on how much you owe across your various accounts, in relation to how much credit you have. So maxing out what’s available to you can have a negative impact on your score, but smaller, responsible borrowing within your credit limits can boost it.
length of credit history
15% of your credit score is influenced by the length of your credit history. The longer your history of paying on time, the better. It’s why keeping accounts open (if you’re not using them much) can be a benefit.
types of credit
10% of your credit score looks at the range of accounts you have. Using credit responsibly across different types of accounts, from mortgage to credit cards can give your score a boost.
The last 10% of your credit score is down to recent activity. So opening lots of accounts, or applying for various loans could have an impact for a short period of time.
A good place to start is to get a credit report to check if there have been any errors. Then catch up on outstanding payments as soon as possible and try to bring any borrowing well within your agreed limits. Avoid applying for lots of new accounts too, if you need your score to remain stable.
But remember, it’s not necessary to chase perfection— a score of around 760 is usually enough to get the best rates.
Financing a car will cause an initial dip in your credit score, but in the long run it can really pay off. Having an installment plan is a great way to prove to the credit folks that you can manage debt. As you pay off your car, your credit score will build too. If you currently only have regular credit cards, then a car loan can show you can manage different types of credit effectively too.
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