Your credit score is an objective number that ranges between 350 and 850. Generally, score of at least 660 are required for favorable credit rates and terms. Credit scores of 720 and above warrant the most attractive lending scenarios.
The system, originally conceived by Fair, Isaac and Company, of FICO scoring assigns your rate or score based on a number of factors such as:
1. Credit History – The number of years experience you have with credit impacts your credit score. Individuals that have had a credit card for ten years will score better in this area than those that have only had 10 months experience with a credit card account.
2. Credit Inquires – Excessive credit inquiries have a negative impact on your credit score so it is important that you not apply for credit too often. If you happen to be in the market for a car or a new credit card it is a good idea to restrict all of your applications to a two week period. All credit inquiries made within a two week period will count as only one and thus have little or no impact on your credit score.
3. Types of accounts – the mix of accounts detailed on your credit report will impact your score. For example, if your report demonstrates a good history with a car loan and a credit card with a limit of $5,000 your score will likely be higher than that of another person with a credit card limit of $500 and no car loan.
4. Available credit – just as the types of credit accounts you have open matters, so does the amount of credit that has been extended and is available to you. Generally, creditors feel more comfortable with applicants that do not appear to be overextended. You will likely be regarded as over extended if you have used more than 35% of your available credit. To improve your credit score you should pay down any outstanding balances and restrict your spending to 30% of your credit limits.
5. Payment patterns – You will improve your credit score by consistently paying your bills on time. If you have not done so already you might consider signing up for online banking or online payment options available through your credit card issuer. Making payments online reduces processing times and eliminates the possibility that your check will become lost en route. Online payments receive credit the very day they are submitted and help improve your credit score. If you don’t want to fool with logging on to make a payment each month you can also sign up for automatic payments, which will be deducted from your account on the date that you specify.
6. Pay more than the minimum – You would also do well to pay more than the minimum due on each outstanding balance. Paying only the minimum costs thousands more in interest over the life of the loan. Paying more than the minimum also suggests that you are over extended and perhaps a poor credit risk in the eyes of potential lenders.
If you have a poor credit score there are a number of online score simulators that can help you develop a plan to improve your score. The most useful scenarios involve paying down balances, paying on time and keeping balances low.