Understand & Improving Your Credit Score

It seems everyone is on a mission to improve their credit score. But how can you work to improve something if you don’t understand it? Several factors go into calculating your credit score.

First things first, let’s discuss knowing what your credit score is. Get a free credit report from AnnualCreditReport.com. This report will show you the following:

1. Your credit score
2. The total balance on revolving accounts
3. The total balance on installment accounts
4. Breakdown of your debt (student loans, car loans, mortgage, credit cards, medical bills)

Once you have this information, you can act.

Start by reviewing the balance on your accounts and the breakdown of debt. If there is any incorrect information, contact the business that issued the account or the credit reporting company that issued the report.

Next, look at your credit score. Scores range between 300 and 850. Generally, a score of 700 or above is considered good, and a score of 800 or above is excellent. Most consumers have a score between 600 and 750.

Why is this important? A higher score makes creditors more confident that you will repay future debt.

How do they come up with this number?

Credit bureaus look at several factors, and each impacts your credit score differently.

• Payment History makes up 35% of your credit score
• Amounts Owed makes up 30%
• Length of Credit History makes up 15%
• New Credit makes up 10%
• Credit Mix makes up 10%

So, if you want to improve your credit score, what do you need to do?

Break down each factor.

• Payment History
  • Payment history is the most crucial factor of your credit score
  • It reflects whether you’ve paid past credit accounts on time
  • Paying your bills consistently and on time increases your score
  • Missed payments hurt your score
  • Are you able to make all payments on time?
• Amounts Owed
  • Amounts owed is the second most important factor of your credit score
  • This only looks at revolving accounts – not installment loans
  • Amounts owed considers the total amount of credit and loans you are using compared to your total credit limit (utilization rate)
  • Any usage over 50% of your available credit will lower your score
• Length of Credit History
  • This is the length of time you’ve had credit – the longer you’ve had credit, the better
  • It makes up 15% of your score
• New Credit
  • This looks at how often you apply for and open new accounts
  • It makes up 10% of your score
• Credit Mix
  • This considers the variety of credit products you have, including credit cards, installment loans, mortgage loans, etc.
  • This makes up 10% of your credit score

Where can you make improvements?

1. Pay your bills on time. If you cannot make payments on time, let’s talk.
2. Pay down your balances to improve your credit utilization ratio. See if you can make cuts in other spending to pay down your debt.
3. Consider not using your credit cards for 3-6 months. Not adding to credit card debt will help.
4. Resume any payments on loans in forbearance (mortgages, student loans).
5. Request credit limit increases to improve the credit utilization ratio.
6. Open new credit cards with a low or zero percent interest rate to increase available credit.
7. Use credit tools to keep track of your goals.

We understand this can be a daunting task, but knowing where you stand and how to take action will empower you and alleviate anxiety or stress.

At Kaniuk Law, we help people with credit repair, debt consolidation, bankruptcy, and other tools to get them to a better financial place.