Tips and Tricks to Help Credit Scores

Credit has become such an integral part of most consumer’s lives. For the majority of Americans credit is used to buy or lease a car, purchase a home, rent an apartment, get a job, get auto and home insurance, open a bank account, get a credit card, and so much more. Your credit and credit score can play a major impact on a consumer’s financial wellbeing. The lower your credit score, the higher rates and payments you will usually pay for most things. The higher your credit score is you will likely see more financing options available, better interest rates and lower payments. Therefore, it is easy to see how important keeping your credit in excellent condition and trying to make sure you maximize your credit scores are.

There are 3 main credit repositories: TransUnion, Equifax, and Experian. These credit repositories have slightly different calculations to figure out your credit score which is why you will often have 3 different credit scores when you have your credit pulled from a creditor such as a mortgage lender. Usually, a credit score can range anywhere from 300 up to 850. The lower the score, the higher the risk you are considered by a creditor in terms of financing and vice versa for the higher your score is. Typically, anything above 720 is considered excellent, and anything under 580 is considered poor.

One of the biggest problems with credit and credit scores playing such a key role in the lives of so many is that most people don’t understand how credit scoring works. Aside from the obvious, such as pay your bills on time there is a lot more that goes into the calculation of a credit score. First, we will delve into the basics of how a credit score is calculated and then we will discuss some tips and tricks to help improve your credit scores.

Here is a basic breakdown of how a credit score is calculated:

  • 35% Payment History
  • 30% Balances Owed
  • 15% Length of Credit History
  • 10% New Credit
  • 10% Mixture of Credit

So what does this all mean? It means that your payment history is the most important factor in
determining your credit score. However, in a very close second is the amount owed. This part of credit
scoring takes into account the total number of credit available and compares it to the total amount of
credit used. Revolving credit, typically credit cards, play a major role in this portion of credit scoring. If your credit cards are all maxed out, you will be considered a higher risk to a lender than someone with very low credit card usage. Credit scoring considers this to demonstrate a consumer’s ability to use credit in a responsible manner. I could go on about this portion of credit scoring for days but let’s keep it simple for this article. Ideally, you do not want to max out credit cards, and you want to keep your balance relatively low compared to what your credit limit is.

The last 3 parts of credit scoring take into account how old your credit history is, how much of your
credit is new credit, and what type of mix of credit do you have. Your credit score is rewarded for a
longer credit history than someone just starting off and trying to establish credit. A longer history paints a better picture of how a consumer utilizes credit. This ties together somewhat with new credit. If you have a lot of new accounts, or a lot of recent credit inquiries, this can have a negative impact on your credit for  any reasons. Finally, do you just have credit cards, do you have an auto loan, or lease, do you have a mortgage, or some type of personal loan? The mixture of credit you have will play a small roll in your credit scores too.

Well now that we know the basics about what credit is, how a credit score is calculated, and what the
credit score ranges are, lets get into how we can improve and/or build your credit and credit scores.

  1. Try to have at least 2-3 credit cards open. Use them responsibly and keep your balances
    compared to your credit limits at 30% or lower. Keeping this lower, and under 10% will help you
    to increase your credit score even quicker.
  2. Ask your utility companies such as gas, electric, cable, internet, etc… if they can report your
    payment history to the credit bureaus (SPEAK TO ME FIRST BEFORE DOING THIS)
  3. If you are a renter, ask your landlord if they can report your payment history to the credit
    bureaus each month. This can be done directly through the credit bureaus, through a third-party
    app, or a service.
  4. Ask a friend or family member who has excellent credit if they can add you as an authorized user to a credit card. However, make sure you know the friend or family member has an excellent history on the card they are adding you to, a low balance compared to credit limit on the card, and that they card issuer reports authorized users to the credit bureaus. Also, make sure your friend or family member knows this is being done to help you build or rebuild your credit quickly and that you don’t want access to the credit card account.