You didn’t acquire a low credit score overnight, and fixing it will take a little time. Knowing more about your credit score and taking basic steps to raise it are ideal ways to start building better credit.
What is a credit score?
Your credit score is a number between 300 and 850 and is usually generated by FICO—a company that develops software used in determining credit scores. Your score is calculated based on your credit history (or credit report) and is designed to predict your risk of being unable to meet your credit obligations within 24 months after the score is generated. Your credit score is important because it can be a major consideration when you apply for loans at financial institutions other than The First National Bank. At The First, credit scores are not a major consideration.
Is there an ideal credit score?
While there are many types of credit scores (FICO has about eight major score categories), most lenders like to see a credit score of 760 or higher. Anything under 650 is considered low.
My score is below 650. What now?
Knowing what affects your credit score is a good way to help you understand and maintain it. The five scoring categories include: Payment History; Amounts Owed; Length of Credit History; New Credit; and the Types of Credit You Use. Some categories weigh more heavily than others. For example, payment history and amounts owed make up 65% of the average credit score. That means borrowing sensibly and paying the money back on time can help raise your score.
Are there other ways to improve my credit score?
Length of credit history makes up 15% of your FICO score, so there’s a built in disadvantage to being young. Fortunately time and good credit habits can help you improve this part of your score. You’ll also want to avoid frequently opening and closing credit accounts. In addition, you can improve your credit score by limiting the number of revolving or installment accounts you have. As a rule, try to use just one card for the majority of your credit purchases and maintain one back-up card for emergencies. Remember “old debt is good debt” when calculating your credit score, so keep your oldest credit card account open and maintain a low debt-to-credit line ratio.
Consolidate debt from multiple credit accounts with The First’s Visa© Platinum card—our lowest introductory rate card.
Paying your bills on time is the best way to maintain a good credit score. Do you have any other suggestions? Let us know in the Comments below.