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Understanding Your Credit Score: The First Step Toward Fixing It

Your credit score is an important number: it will influence whether or not you get approved for apartment or home rentals, loans and mortgages, and other types of financial undertakings. For more information about the details of your credit score and how to boost a credit score that's not so hot, read on.

 

What Factors Make Up My Credit Score?

The first thing you should understand about your credit score are the factors that influence it. Your credit score is calculated based on an in-depth consideration of your bill-paying history, how much of the credit available to you you're using, the number of bank accounts you have as well as what type of accounts they are, how long any of your accounts has been open, and any history of declaring bankruptcy or other forms of debt, such as a home foreclosure or debt sent to a collection agency. Your credit score is then calculated according to the following percentages: 35% of your score is based on your payment history; 30% on debts owed; 15% on the length of your credit history; 10% the mix of credit; and 10% on new credit.

 

Improving Your Score

Since your payment history and debt owed account for the majority of your credit score, focusing on these two aspects first is the best way to boost your credit score. The amount of debt that you owe on your credit card, or on multiple cards, is one of the most pressing influences on a bad credit score, and keeping your credit card balance below 30% of your total limit can help to improve a bad credit score. For example, if your credit card limit is $1000, keeping your balance below $300 will help your credit score. Paying off your card in full each month is an excellent way to work towards a higher credit score.

You can also improve your credit score by establishing a long history of good financial behavior with banks and creditors by keeping accounts open for a long duration of time and paying off your debt on time each month. Creditors also like to see a variety of types of debt that are being paid in addition to credit card debt, such as a student loans and loan repayment for a car or house.

 

How Long Will Improving My Credit Take?

If your credit score is extremely low or if you have large amounts of debt, it could take several years to raise your score significantly. For example, while the statute of limitations on credit card debt, after which the debt is time-barred and creditors cannot collect upon it, might be only a few years (depending upon the state in which you live), your credit report will still show that there was an unpaid debt for 5-7 years. 

If you've had unusual circumstances that led to your debt, such as a medical accident or the loss of your job, your creditors may be more forgiving if you offer them a short explanation. Other than that, the best way to improve your credit score is simply by paying off the debt that you can while being careful to avoid accumulating more debt than you can handle.


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