How to Improve your Credit Score
Calculating your credit score is something that many of us have been avoiding over the years, or have little knowledge on how to do so, today we are going to talk you through everything you need to know about credit scores, from what they are, to how to calculate and furthermore improve yours.
What is a credit score?
A credit score is a number that ranges between 300-850 that best describes a consumer’s creditworthiness.
A credit score is taken into account by many bodies such as banks when opening an account, taking out a mortgage and loans.
The higher your credit score is, the more attractive and reliable the borrower is seen to be in the lender’s eyes, giving you more chance of being able to access funds as they view you to have a higher ability to repay loans in conjunction with their guidelines.
How to calculate your credit score
There are many credit score calculators available online, but the most commonly used one is the FICO model (FICO Score Range) that was created by the Fair Isaac Corporation.
There are a number of considerations that have to be taken into account when calculating your credit score for example;
- Your payment history – this will account for 35% of your credit score and concerns whether you make payments on time and how often you miss payments.
- How much you owe – if you have taken out loans or credit cards over the years the FICO model will take into account how much you still owe. It will also consider the proportion of money you owe against the available funds you currently have access to and this will make up a further 30% of your score.
- The lengths of your credit history – this will account for 15% of your credit score and will take into account the amount of time you have been making repayments on time.
- Credit card activity – often people are led to believe that taking out a credit card is harmful to your credit score, but in fact, regularly paying for things using your credit card can boost your credit score, so long as you stick to the repayment schedule.
- Credit history – Your credit card history will make up 10% of your overall credit score, so be wary of how/what you use it on.
- Type of account – lastly the type of account you have will make up the final 10% of your credit score. Having a range of account types may improve your score so look into taking out the likes of credit and retail cards.
Once these factors have been taken into account, FICO can then categorize your credit score into one of the following brackets;
- Excellent: 800 to 850
- Very Good: 740 to 799
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
How to alter your credit score
After you have calculated your credit score, if you find yourself unhappy with it or are needing to improve it to be granted the likes of a loan or mortgage, there are many ways that you can set out to alter your credit score for the better, it is all about finding a way that is best suited to you and your financial needs.
We suggest not attempting to alter your credit score unless you are in a financially stable position to do so as it could have a detrimental effect on the overall scoring if you are unable to adhere to repayments.
As suggested, putting the likes of holidays on a credit card is a great way to build up your credit score, as long as you are confident that you can pay it off in a timely manner.
Summary
Calculating your credit score can be a tedious and daunting process, but it is something that all of us should do in order to improve our financial situations.
We hope that we have been able to provide you with some insight as to how credit scores work and some useful tips as to how to calculate and furthermore improve your credit score.
If after reading our tips you are finding that you still need assistance, the likes of banks are a great source of information and can provide you with plans to help improve your score.
Let us know down below in the comments section if these tips have enabled you to get your credit score in check, and if you have any further suggestions that you think people will also find helpful please be sure to share!
