How to improve my credit score?
Credit scoring models are complex and often vary among creditors and for
different types of credit. If one factor changes, your score may change --
but improvement generally depends on how that factor relates to other
factors considered by the model. Only the creditor can explain what might
improve your score under the particular model used to evaluate your credit
Nevertheless, scoring models generally evaluate the following types of
information in your credit report:
- Have you paid your bills on time? Payment history typically
is a significant factor. It is likely that your score will be affected
negatively if you have paid bills late, had an account referred to
collections, or declared bankruptcy, if that history is reflected on
your credit report.
- What is your outstanding debt? Many scoring models evaluate
the amount of debt you have compared to your credit limits. If the
amount you owe is close to your credit limit, that is likely to have a
negative effect on your score.
- How long is your credit history? Generally, models consider
the length of your credit track record. An insufficient credit history
may have an effect on your score, but that can be offset by other
factors, such as timely payments and low balances.
- Have you applied for new credit recently? Many scoring models
consider whether you have applied for credit recently by looking at
"inquiries" on your credit report when you apply for credit.
If you have applied for too many new accounts recently, that may
negatively affect your score. However, not all inquiries are counted.
Inquiries by creditors who are monitoring your account or looking at
credit reports to make "prescreened" credit offers are not
- How many and what types of credit accounts do you have?
Although it is generally good to have established credit accounts, too
many credit card accounts may have a negative effect on your score. In
addition, many models consider the type of credit accounts you have. For
example, under some scoring models, loans from finance companies may
negatively affect your credit score.
Scoring models may be based on more than just information in your credit
report. For example, the model may consider information from your credit
application as well: your job or occupation, length of employment, or
whether you own a home.
To improve your credit score under most models, you should
- Correct mistakes on your credit report. Many inaccuracies on a
credit report can be the result of simple human error, and are therefore
are not difficult to dispute. Of course, if you don't order your credit
report, you might never know about it. Whether the inaccuracies relate
to payments not credited, late payments, or data mixed in from the
credit file of someone else with a name similar to yours, you will want
to contact the credit bureau to dispute inaccurate information promptly.
- Concentrate on paying
your bills on time. This is especially important when it is close
to the time to apply for a loan.
- Paying down outstanding balances. It is recommended that you
keep your balances at or below 25% of your credit card limit.
- Not taking on new debt, do not move your debt around. High ratio
of your credit card balance to your credit limit will lower your credit
score, so you should not close out an account and transferring the
balance to another credit card.
- Do not open or close credit card accounts near loan time. Closing
accounts will increase your balance-to-limit ratio. Opening new
accounts is also not recommended.
- Choose your credit cards wisely, only apply if you will use it.
Do not apply one just because you like the look of the card.
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