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How to Enhance Your Credit Score

By Ruth Racey
Published: Thursday, November 26th, 2009

A credit score ranges from 350 to 850.  A score of 700 and above is considered to be favourable while a score 600 and below is regarded as a bad rating. Undoubtedly, each one of us is aiming to reach a rating of at least 700 points or more.  Nevertheless, maintaining a good rating may not always be that easy.  Let us talk about how you can enhance your personal credit score.

The FICO scoring system is based upon 5 aspects of financial management.  First, is the timeliness of payment which is 35% of your FICO score; Second, is your credit-to-debt ratio which is 30%; Third, is the length of your history or how long since you were first extended credit which is 15%; and the last two factors are the types of credit you are given (10%) and inquiries in your credit report (10%) which makes up the remaining 20% of your final FICO score.

Based on these aspects, it is easy to see how late payments can really affect personal credit rating.  If you are always on time in submitting payments, you should be able to get a perfect score on this particular category.  Unfortunately, many people neglect or forget about their payment due dates which explains why they suffer from a low credit score.

How you use your given credit limit is another big factor.  To be on the safe side, consumers are advised to use only 30% of their available credit and no more than that percentage.  This means even if your card offers an incredibly low rate, it is not recommended that you maximize the use of your credit line.  Another way to reduce credit-to-debt ratio is to pay off card balances in full each month.  Thus, you can start with a zero balance in your account for each billing cycle.

The third factor is the length of credit history.  This is the reason why students who get a credit card while in college can have an advantage.  If lenders can see that you have been managing credit for a long time and you have been managing it well, then they will have more confidence in your capability as a borrower.

Finally, the type of credit or accounts you have and the inquiries in your report can also affect your score.  It is a good idea to try to have a balance when opening accounts.  You do not need to obtain several cards just to prove your credit worthiness.  One or two should be enough.  To show your flexibility, why not apply for a car loan or a mortgage loan instead?  Ultimately, how well you manage the accounts you have is the key to enhancing your credit score.

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