Help! I Need to Improve My Credit Score

Managing Your Credit Score

Credit scores are like GPAs for the adult world. Everyone has one, but not everyone knows how to manage them. Many people find that they get into trouble with debt, usually in the form of credit cards, student loans or mortgages. Understanding and managing your credit score is one of the best things that you can do to manage your finances. Credit scores can range between the 300s to the mid 800s, but the average score is a 678. If you can raise your score above 700, you are doing well! Here are some tips to help you to understand how your credit score is calculated.

35% Payment History

Payment history is the biggest individual piece of your credit score. Essentially this is a measure of how reliable you are at making payments every month. This score is determined by whether or not you pay on time each month and how much you pay. If you pay only the minimum, your score will likely be lower than if you pay off your full balance each month!

30% Amount Owed

The amount owed is simply how much debt you carry. The less debt you have relative to the amount of credit you have available the better off you are! You should strive to keep your utilization ratio to as close to 10% as possible. This means that if you have credit cards with a $1000 limit, you should try to spend no more than $100 of this balance. This will quickly help to raise your score.

15% Length of History

This may seem unfair to young people, but 15% of your score simply is calculated by the length of your credit history. Older adults with longer credit histories tend to be more responsible, so that's why the length of your report matters. There is not too much you can do here!

10% Type of Credit

There are many different types of credit, but the most common are installment and revolving credit. Installment debt, such as that of a car loan, is more favorable than revolving debt, which is typically in the form of credit cards. If you can change your ratio of installment to revolving debt, you can do yourself a big favor!

10% New Credit

Whenever you open a new credit account your score tends to drop. This is because people tend to take out credit when they "need" it, which indicates that they are riskier than they were before. So when you apply for credit, your score takes a temporary dip!

100% Responsible

Managing credit cards and loans can be scary, but it is an essential part of life. The more that you can do to take charge of your financial future, the better off you will be in the long run. Look forward to more posts about money management.