Are you one of the American Credit Card holders that have an average debt of $14,743 according to www.creditcards.com ? If so, this may just be one of the areas that could be bringing your score down. The best way to find out what your score is and how to improve it is to first gather your information from the three credit bureaus: Equifax, Trans Union, and Experian.
These are some of the common errors that could be bringing your score down: negative information that is seven years old (bankruptcies 10 years), wrong addresses, phone numbers, employment, and even wrong people with your same name (i.e. Sr, Jr, II, III, etc.). In fact this happened between my dad and brother (Sr. vs. Jr.) many times.
Areas to Improve:
Payment History -This makes up to approximately 35% of your overall score.
- Your score will focus on how you have paid your mortgage loans, credit cards or other type of installment loans.
- Public records of any bankruptcies, foreclosures, wage attachments, liens or judgments will also cause your score to be effected.
To improve your score in your Payment History is to remove negative information and pay on time. Certain accounts will weigh more in the scoring process than others, for example your mortgage account paid on time will raise it faster.
Amounts Owed – This area makes approximately 30% of your overall score.
- On all accounts owed and their amounts.
- The different types of credit accounts and the amounts.
- The account balances and how many accounts.
- Are credit lines being maxed out or how close to being max out.
- What is still outstanding on the installment loans? (i.e. Auto)
To improve your score in your Amounts Owed is to do the following:
- Get your debts paid down.
- Certain debts are to be paid first. (i.e. mortgage debt vs. credit card)
- What you DONT have is important too. (i.e. If you don’t have an open installment loan this shows positively on your credit score because lenders will believe that you will more likely pay your other bills on time. )
- Credit card still shows a balance even though paid off every month. The credit report will reflect the last month’s statement. This could bring your score down.
- Closing credit card accounts you no longer use could lower your score.
- Opening new accounts when you don’t need to, so that you can improve your credit score can back fire and lower your score.
- Increase the amount of cushion on your credit card from what you owe and what your limit is can improve your score. (Rule of thumb don’t owe more than a 1/3 on your credit line: $3,000 credit limit and you have $1,000 balance owed)
- Don’t move debt around, pay it off. (i.e. 0% on credit card offer but keep original card to use again)
Credit History – makes up approximately 15% of your overall score. This area will look at how long, what types, and when last you used specific accounts. To improve your score in this area, do the following:
- Calculate your accounts average age. (i.e. credit card 1 year and car loan for 2 years = 1.5 average account age.)
- Don’t open accounts to fast or frequently.
New Credit – makes up approximately 10% of your overall score. This area will focus on the following:
- Recent accounts opened
- How long the accounts have been opened?
- Request for credit (inquiries) within the last 12 months.
- Efforts to re-establish credit from past credit problems.
To improve this area of your score, remember the following:
- Potential lenders or landlords when pulling your credit will leave an inquiry.
- Inquiries stay on your for two years but the score is measured by the last 12 months.
- Regularly check your credit report and dispute any unauthorized or multiple inquiries.
Types of Credit – makes up the last approximate 10% of your score. This area focuses on various types of credit. These will include credit cards, retail accounts, installment loans, finance company accounts and any mortgage loans you may have.
Keys to improving your score in this area you need to know the following:
- If you have no credit cards, this could lower your score.
- Lenders look at how good you are paying your debts and how responsible you are by looking at your credit history. Also, having at least two bankcard accounts are very good indications on how responsible you are as well.
Disclaimer: Wendy Twine is a Real Estate Agent in Virginia and North Carolina. She has gathered her information from interviews of various lenders, Credit Card.com and Financial Hotline.
*Note: This content is for informational purposes only. Wendy Twine makes no warranties and bears no liability for use of this information. The information is not intended, and should not be construed, as legal, tax or investment advice, or a legal opinion. Always contact your legal, tax and/or financial advisors to help answer questions about your business’s specific situation or needs prior to taking any action based upon this information.