Stay one step ahead of your finances by understanding how healthy your credit is. You should be able to know where you stand in the credit bureaus’ eyes and therefore know how much you take on.
How do you do this, you ask? Here are some steps for you to consider if you want to take control of your future.
The first step is to simply understand your credit report and score.
A credit report is straightforward. It’s essentially a detailed history of your credit card that brings everything from your payment history to the agent status of your account.
This is recorded by the 3 major credit bureaus in the United States TransUnion, Experian, Equifax.
As you can imagine this is quite a lot of information for anyone to process.
A company actually created a simple way to gather all this information and called it FICO – the FICO credit score is a number between 300 and 850 that summarizes your credit report.
The higher your score the lower the interest rates and the better the rewards you get. Some banks plus a high credit score is also vital for a number of other things like getting affordable insurance, finding an apartment, job seeking, and qualifying for a cell phone plan.
Ironically for such an important number getting your credit score actually used to be quite difficult and expensive – but now we recommend a website that makes it free and easy for you to get your credit score and report online.
A credit score is actually made of five components.
The four major ways to improve your credit score:
- history 35% of your score because this is such a large number it reveals the importance of paying every bill on time even if it’s just a minimum. If you’re struggling with this, we highly recommend setting up automatic payments for everything, especially your credit card.
- Credit utilization 30% of your score to avoid damaging this we recommend not exceeding more than 30% of your maximum credit line for the total and for each individual account. If you’re struggling with this try paying off your balance early a few times a month or try asking your bank for a credit line increase.
- The length of credit history 15% of your score is a component means rather counter-intuitively that you shouldn’t close out your old credit card account unless you absolutely have to – because otherwise you’re hurting your credit score.
- Recently increase your credit 10% of your score apply for new credit cards and Loans unless absolutely necessary as credit inquiry will slightly lower your credit score by a few points. For the next 12 months, finally part five types of credit used 10% of your score – unfortunately we just don’t have a rule for this one as we don’t recommend racking up lines from multiple types of credit.
Before we conclude we just have two more things for you to keep in mind.
First is to build a credit history – that’s your credit score. You need to use credit and the way to do this is to open a credit card like a secured credit card that is designed specifically for people with no credit history.