Credit scores may feel confusing and at times upsetting for a figure that is so crucial to our ability to rent an apartment, buy a car, or buy a home. In truth, our credit score is calculated using a system that takes into account five basic elements.
- 35% Payment History: Your credit scores most important factor is your payment history. Have you ever made a payment on your bills? Are they being paid on time?
- 30% of the Total Amount Due: Just because you owe money doesn't automatically make you a high-risk borrower. However, using a significant portion of your available credit will lower your credit score.
- 15% Credit History Length: Generally speaking, a longer credit history will result in a higher total score (assuming other aspects look good). But if they aren't using their credit card to the limit and are making their payments on time, even those with a brief credit history can still have a decent score.
- 10% New Credit Opened: Opening several credit accounts quickly nearly usually lowers your score. For those with brief credit histories, the effects are considerably more severe. Opening several credit lines is typically considered to be high-risk conduct.
- 10% Credit Types You Have: Retail account credit, such as the Macy's card, installment loans, mortgage loans, and conventional credit cards (Visa, MasterCard, etc.), are all taken into account when calculating a FICO score. Your credit score will thus increase if you have credit cards and installment loans with a strong payment history.
Manage your total debt, use credit only when absolutely required, and make on-time payments on all of your agreements. Try to pay off balances with higher interest rates on credit cards, loans, and/or personal loans if you currently have them to avoid having an excessive amount of debt. For others, it's simpler to pay off a lesser number first since it makes them feel like they've made progress. This is a far better beginning for effective debt management.
There is no better time than the present to lay the groundwork for financial independence and stability. You can address the unknowns and get answers by consulting a professional. You're putting yourself in a strong position for the future by making wise decisions today. Utilize these suggestions to go closer to the ultimate objective of a worry-free financial future and retirement.
If you have any questions, don't hesitate to ask a Women Financial Power financial advisor.