A credit score is a three-digit number that lenders use to assess your creditworthiness. It ranges from 300 to 900, with a higher score indicating a lower risk to lenders.
There are five main factors that are used to calculate your credit score:
- Repayment history (IMPACT – High): This is the most important factor, and it accounts for 35% of your credit score. Lenders want to see that you have a history of making your payments on time.
- Credit utilization report (IMPACT – High): This is the percentage of your available credit that you are using. A low credit utilization, typically below 30%, is considered good.
- Credit history length (IMPACT – Medium): Lenders prefer borrowers with a longer credit history. This shows that you have been managing credit responsibly for a longer period of time.
- Credit mix (IMPACT – Low): Lenders want to see that you have a variety of credit accounts, such as credit cards, loans, and lines of credit. This shows that you can manage different types of credit.
- Recent credit inquiries (IMPACT – Low): Lenders may be concerned if you have a lot of recent inquiries on your credit report. This could indicate that you are applying for a lot of credit, which could be a sign of financial trouble.
By understanding the factors that affect your credit score, you can take steps to improve it. Here are some tips:
- Pay your bills on time. This is the most important thing you can do to improve your credit score.
- Keep your credit utilization low. Aim to keep your credit utilization below 30%.
- Avoid opening new accounts too often. Opening a lot of new accounts in a short period of time can hurt your credit score.
- Pay down debt. The less debt you have, the better your credit score will be.
- Request a copy of your credit report and review it for errors. If you find any errors, dispute them immediately.
By following these tips, you can improve your credit score and get the best possible terms on loans and credit cards.
