Getting a Good Credit Score

Having a good credit score is something that most people need these days in order to get the things that they want to get in life. From a home mortgage to a car loan to getting unsecured debt that allows you to have some cash liquidity and financial freedom, you need to have a pretty great score (not an average credit score) to be able to accomplish any of those things.

In can be difficult to get a good score if you don’t know what the criteria is for your credit score, so here is the information that you need to know so that you can maximize your credit potential and get the best interest rates on your credit starting today.

35% of Your Score is Based On How You Pay Your Debts

Are you the type of person who pays off their debts before they are even due? Do you pay off your debts all the time, but only near the due date for those debts? Maybe you miss a payment once and awhile, but for the most part you keep everything current? Whatever the case with you, how you repay your obligations reflects 35% of your score with the credit bureaus. Every time you make a payment on time before the due date with your unsecured debt, you get a little boost in your credit score. Every time you fail to make a payment on time, you lose points on your score, even if it is only once and even if it only goes to 30 days. If you let an account slip to 60 days, this will cost you more, as will 90 days, 120 days, and so on. So if you want to have a good credit score, the first thing you need to do is pay your bills on time, all the time.

35% of Your Score Is Based on Your Debt to Balance Ratio

Most people don’t realize that an equal portion of their score is actually based on how they use their credit. This means that if you have all of your credit available to you, your score will actually lose points because you have all that credit available to you. If you have most of your credit tied up with purchases, then this will also lower your score because you are seen as a greater risk because of your consumerism. Either way, the best way to improve your score is to have a fair portion of debt on your unsecured lines that you consistently pay on – this shows that you are willing to carry some debt and have the responsibility to take care of it.

15% of Your Score Is Based On How Long You’ve Had Credit

Have you ever encountered the fact that you are getting turned down for financing because you haven’t established enough of a credit record for them to make a judgment on you? This occurs because 15% of your credit score is based on how long you’ve actually had access to credit, and the longer your history is, the more this 15% can help you. Of course, if your credit history involves you having a lot of delinquencies and defaults, then this is not necessarily going to be a great thing, but the longer you have credit, the more your score is going to be influenced by that fact.

10% of Your Score Is Based On What Kind of Credit You’ve Had

How many vehicle loans have you successfully paid off? Do you have or have you had a mortgage in the past? What kind of large item financing have you had… or has all of your credit always been the unsecured kind, like credit cards? The more items that you have had on your credit history that are major items, like a mortgage, a vehicle loan, whether new or used, and other big ticket items will help to improve your score because it shows that at least in some point in your history, you were able to secure financing because of good credit – no matter how bad your credit might currently be.

10% of Your Score Is Reflected In What You Apply For

Those cashiers that offer you the ability to get 10% off of your purchase when you just apply for new credit are something that you should always say no to, because even if you save $100 on your purchase, you’re affecting your score when that application goes through. Even if you know that you are going to be denied you should still say no, because 10% of your score is reflected in your applications. If you are always attempting to secure new lines of credit, lenders will be wary of you and why you need extra funds… especially if your credit is poor in the first place.

By knowing what is behind your credit score, how it is formulated you can successfully navigate the credit waters and achieve a great score all the time. Just remember to pay your bills on time as much as possible, keep your debt in a manageable area, and stay away from applying for a lot of debt (it might be worth for you to check also my article about how to improve credit score). When you do that, you’ll be certain to get a good credit score.

Anna Baraniuk