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You Can Improve Your Credit Score, But It Doesn’t Happen Overnight

By Brian Anderson
Published: Wednesday, November 18th, 2009

Whether you are applying for a credit card account, planning to get a home mortgage or a car, or seeking insurance, you should know that lenders and providers would most probably check your credit score. A huge part of their approval will depend on this score. 

Through your credit report, they will determine how likely you’ll be able to repay for the loan. The higher your score, the least problems you will have because that means the lesser risk you reflect. 

Of course, everybody wants high credit scores. But that doesn’t happen overnight. And because it’s only a representation of your credit report, effort must go to keeping it clean. The five elements of a credit report are Payment history, Amounts you owe, Length of credit history, Types of credits used, and your new credit. Improve your credit score through the following actions. 

On payment history

Payment history generally makes up about a third of the credit score. This includes details about whether accounts are paid on time, balances paid off consistently; or if minimum payments are made; whether there are delinquent accounts or past due balances. Bankruptcies, judgments, collection accounts, and past due credit cards and loans are all monitored within this area of your credit score. 

One credit score advice regarding credit history is to contact your creditor when you foresee problems paying on time. Try to create an agreement and do negotiate with them in terms of paying so that at least some of your late notations won’t get included on your credit report. 

Another credit score advice is to consult a legitimate, non profit credit counselor when you have serious problems about paying. Beware of scammers who tell you they could fix your problems in no time. 

Amounts You Owe

The outstanding debt that you have is much more significant in impacting your credit score. About a third of your credit score will be attributed to your outstanding debts and your debt to income ratio as well as your credit-debt ratio.

For example, if you have a total available credit of $10,000, use $9,700 of that credit, have monthly payments of $500 versus a monthly income of $1000, your credit will look less than exemplary. Ultimately, the more credit you have and the less you are using, the better off you are. 

Even if you are not using an account, you should keep it open. This is because having an account on zero balance lifts up your credit score. Another credit score advice is to avoid opening accounts just so you can increase your available credit. Pay off your debts as much as you can, that should be the priority. 

Length of your credit history

Remember that your credit score can rise if you keep your accounts open for the longest time. But of course, it’s much better if these accounts are well managed. A simple credit score advice to follow is to not open accounts very quickly. Let your present account live for at least three years. The rationale behind keeping your accounts is that opening one account after another tells your creditors that you are having problems paying your debts. And the fastest way to escape them is to create a new and clean account. 

New credit

Newness of accounts or recent credit grantors will affect another small portion of your score. If you have six credit accounts on your credit report and four of them are less than 2 years old, you’re going to look greedy and irresponsible to most creditors, lowering your score. Also, the number of inquiries you have that are recent makes an impact on this. If you apply for three credit cards in three months and are denied, this lowers your scores because you appear to be overextended and desperate for credit. 

A good credit score advice would be to keep credit inquiries to the minimum if you plan to improve your credit score. Remember that if you make too many credit inquiries, your creditors would think that you have plans opening new accounts. This boils down to the idea that you are an irresponsible payer, as previously mentioned. 

However, there is no harm in checking your own credit report; that doesn’t count as an inquiry. If you have had problems past payments, opening new accounts is advised. But be sure to pay them on time this time and avoid maxing them out. 

Type of credit used

Variety is also the key when it comes to credit reporting. A small part of your credit score is determined by the variety of credit that you have. For example, if you have a mortgage, a car loan, and a few credit cards, you’ll have a better credit score than someone with just a mortgage or just credit cards. 

Mixed type of credit is only advantageous for your credit score if you know how to manage them well. If you are not very confident in always paying on time, choose installment loans since payments remain the same until balances are paid.

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