Your credit score is one of the most important aspects of your financial life. It affects your ability to borrow money, get a job, and even rent an apartment. So it is no wonder that people are always looking for ways to improve their credit scores.
It is also important to note while talking about credit scores that it is a good idea to monitor your credit score with a service like LifeLock.
If you need a little help paying off debt to boost your credit score, consider taking out a debt consolidation loan, which can combine multiple debts with one monthly payment. I know several people who have needed to do this in their 20s and while it did not minimize their debt, it helped them reduce the number of payments they had to make each month.
There are several factors that impact your credit score, including your payment history, credit utilization, credit mix, and length of credit history.
Here’s a closer look at each of these factors:
1. Payment history
Your payment history is one of the most crucial factors in your credit score. Lenders want to see that you’re consistently making on-time payments. If you have late or missed payments in your past, it will likely hurt your credit score.
2. Credit utilization
Your credit utilization is the amount of credit you’re using compared to your credit limit. The lower your credit utilization, the better it is for your credit score. Lenders like to see that you are not maxing out your credit cards and that you are using a manageable amount of your available credit.
3. Credit mix
Another factor in determining your credit score is your credit mix, which refers to the type of accounts you have on your credit profile. These can include revolving accounts like credit cards and installment accounts like loans. A diversified mix of credit types is generally seen as favorable by lenders.
4. Length of credit history
The longer you’ve been using credit, the better it is for your credit score. Longer credit history shows lenders that you are a responsible borrower.
5. New credit
Opening new credit accounts can temporarily lower your credit score because it can look like a sign of financial risk. So if you’re planning on applying for a loan or credit card, it’s best to do so before opening any new lines of credit.
The Bottom Line
Keep these factors in mind as you work to improve your credit score. By understanding how your credit score gets calculated, you can make smarter decisions that will help boost your score over time.
If you start building your credit from a young age, you can set yourself up for long term success. Credit is crucial for being financially successful throughout your life, and there are certain things you can do to help this process along.
As long as you are being as financially responsible as you can, you will be great. Space out how often you apply for credit cards and diversify the types of credit you have. Always pay your payment on time and try to have low utilization. This will also help you avoid paying too much in interest.
If you are struggling with credit card debts, consider a consolidation loan to combine multiple loans or debts into one, with just one payment and different financing options.