I have actually gotten this one a few times and it really is much simpler than people make it out to be. I don’t know whether it is the credit card companies that want to keep it a secret or that people are just too lazy to go figure it out for themselves, but either way it’s easy to understand and once you do, it makes improving it much easier…
It really isn’t rocket science, but perhaps the idea of realizing how it’s done is the problem I’ve seen most people run in to. So I’ll start it out as easily as I can, with graphs and pretty colors.
This is the juiciest piece of the pie. Do you pay your bills on time? If payments are late, how late are they? Have you been delinquent. This one is pretty obvious as being the top dog on the %-chain. If you have a history of not paying back money, why would anyone want to lend it to you in the first place? Keep on top of this one.
Another pretty self-explanatory one – How much do you owe? I’ve heard on this one that it is best to keep this amount under 35% of the total balance of your card. For the sake of easy numbers that means if you have a $1000 limit on your card, don’t keep the balance over $350 on it month over month or your score will ride up a bit. Another factor on this one is how many different accounts do you have that carry this same balance? If you have 5 cards (again for the sake of easy math) each having a $1000 limit that means you have a total of $5000 that you’re able to rack up, keep that number under 35%, or $1750.
Length of your credit history
Are you a first-time borrower? Did you get a card right out of high school? Honestly, if you do have the chance and are 18 and reading this, which I assume you are not, but if you had a way back machine, I’d recommend opening a card when you’re 18; even with a credit limit of $250 or $300. It’s showing you’ve got history, that’s big. I actually made the mistake of closing this one when I was about 21 since I wasn’t using it, not realizing this was a big piece of my score.
Do you have any credit accounts? How many accounts have you opened recently? Have there been a lot of credit inquiries on your record lately? If you DO have a lot of inquiries and requests to open new credit, they’re thinking you’re hiding something or that you’re in over your head. Be sensible when opening new lines of credit. Don’t just open them to open them; have a reason to do so or this one can bite you on the score.
Types of credit used
This one is just inquiring as to where your credit has been and is now. Do you have a mortgage? A car loan? What type of credit cards cater to your fancy? Do you have high interest rates on them? Clearly a mortgage is alright, a car loan not too bad; but watch yourself on the credit cards you have. This one really encompasses all the prior categories above.
Now I’m not saying that you can’t get a loan still if you have bad credit. Lenders look at other parts of the pie that the FICO score doesn’t hit (yet). Lenders want to know your income for one. If you make $10,000,000 a year, but have a credit score of 425 and are looking for a $10,000 loan. I’m pretty sure they’ll not care too much about the score. On the flipside of that though, if your credit score is 800, but you only bring in $12,000 per year, it might be tough for them to agree to letting you borrow 500k for that fancy new house you’re lookin at too.
Photo by: ninjapoodles