How To Improve Credit Score and What Is Credit Score: Learning All About Credit Score
How To Improve Credit Score: Learning All About Your Credit Score
Are you one of those people who think that applying for credit cards lowers your credit score? If you are, then it’s time for you fully understand the way your Credit Score functions.
Some people who have nearly perfect credit scores actually have about 20 credit cards. Understand that the number of credit cards that one has does not ruin his or her credit score.
It is actually the opposite.
Let us take a look at the factors that affect and how your credit score is calculated.
Credit History (35%)
The biggest part of your credit score is your credit history which is 35%. In other words, whenever you pay your bills on time each month, this will be over a third of your credit score and the result is better credit history.
So, imagine if you are unable to make your payments on time, it will surely create a huge impact on your score.
Request For New Credit Cards (10%)
There are several factors that may affect the movement of your credit score. But, applying for multiple cards or having different cards has a different impact.
As stated above, ten percent of your credit score is your requests for new credit. Whenever you apply for a new credit card, your score may temporarily go down by a few points.
But it does not stay that way for a long time since eventually, the rest of your credit score increases when you apply for more cards or in other words, new credit. Having more cards help you build your credit score by showing the banks that you can use your credit responsibly every time you pay your bills on time.
Remember!! Choose the best credit cards to build your credit by choosing the cards with the lowest apr and with the least amount of fees.
Credit Utilization (30%)
About 30% of your entire credit score is Credit Utilization. This is where having multiple credit cards will finally make sense for you.
So, when you have a credit card, you will be given a certain amount of credit which you can use. But the trick is to not use more than 30-40% of the total amount of your credit line.
Say for example, in a single credit card, you are given $10,000 of available credit. Spending about 90% of that amount will make the banks worried because you are actually using almost all of the available credit.
This will appear as a great risk to your lenders.
The banks will start to question if you can pay back what you spent at the end of the month. Basically, you want to keep your expenses minimal if you want to impress the banks.
We recommend that you only spend 30-40 percent of your credit and then pay it off in full each month. By utilizing just a small percentage and paying it off on time every month, you will impress the bank and eventually, increase your credit score.
This makes a lot more sense for those who have about 20 different credit cards for example. The trick? They see to it that they keep their expenses minimal and making their payments on time.
The more cards that you have, the more chances you get to prove that you are responsible with your finances. And the result? Your score increases!
The average age of your account (15%)
The banks or credit card issuers want to see that your cards are being used for a long time. What you can do is get some cards that do not have annual fees.
Use that card for many years. This way, it makes the average age of your accounts older.
Basically, the older your account is, the better. The longer you get to prove and show to the banks how responsible you are with your finances, much better!
That is what they want to see so they will increase your credit score.
The type of credit (10%)
The last part of your entire credit score is the type of credit that you use which is 10%. There are several types of credit cards that you can use but since this is just a small component of your score, you should not worry too much if you do not have a really diverse mix of best credit cards to build credit.
What you can do instead is use whatever card you have responsibly and not do anything that may negatively affect your score. This way, you can show the banks or your credit card provider that you are responsible for whatever it is that you have.
Want more Credit Score facts and details? Take a tour of our blog posts today.
Subscribe to My Renter Hero Blog
Get the latest posts delivered right to your inbox