Embrace Home Loans; How To Raise Your Credit Score
Posted 02/19/2011 by Anonymous
How To Raise Your Credit Score:
Your credit report is a history of how you pay your bills. It includes your credit accounts—mortgages, student loans, credit cards, and auto loans—and shows if you’ve been late or on time with your payments, the balances on these accounts, and who else has been looking at your credit report.
Your credit score is calculated from a formula based on the components of your credit report. While the score is a good reflection of you and your financial capabilities, there’s still room for interpretation. A lender or creditor will look at your score as another element in determining the risk in lending to you or giving you credit. Some consumers think of credit scores as a mysterious financial calculation over which they have no control. The truth is, only you have control over your credit score.
There’s a set formula the credit bureaus follow to calculate your credit score and there are 5 steps you can take to raise your credit score:
1. Pay your bills on time and in full. Do you make your payments on time or are you late? If you’re late, how late are those payments? Are you paying in full or only making minimum payments?
2. Reduce amounts owed and increase available credit balances. Creditors look at how much installment and revolving debt you owe. But they also want to know what percentage of your available credit balance you are using.
3. Keep credit accounts open. Even if you don’t use a certain credit card anymore, if you have a history of paying that bill on time, keep it open. Having a long history with an account shows the credit bureaus and lenders you can manage your payments responsibly over time.
4. Don’t open too many new credit accounts. Opening several new accounts can affect your length of credit history, your available balances and could negatively impact your credit score.
5. Maintain a variety of types of credit. Creditors like to see a variety of types of credit, including installment loans (such as auto loans), revolving loans (such as a mortgage or home equity loan), and open credit accounts (such as credit cards).
Paying your bills on time and your available balance are the two biggest factors in calculating your credit score, accounting for over 65 percent of your credit score computation. It’s basic math - handle these two things well and you’re more likely to have a higher credit score, generally speaking.
The last three factors only account for 35 percent of your credit score calculation, but if you keep applying for new lines of credit or close out new accounts, it will affect your score.
One final piece of advice, if you’re thinking about buying a house, make sure your credit score is where you want it to be before you start shopping for a mortgage. Too many credit inquiries from mortgage lenders can also cause your score to drop.