The world is yours if you have good credit. Having a good credit score makes it easy to finance a car and purchase a home. People with good credit are viewed as being more trustworthy, dependable, and responsible.
If you’re trying to purchase a new home or vehicle, you may be looking for ways to improve your credit score. Let’s discuss a few simple ways that you can increase your credit score.
What is a Credit Score?
Before you can increase your credit score, you should understand exactly what a credit score or rating is. A credit score is generated mathematically using information from your credit report. The main components of the credit score equation are debt history and debt weight.
Debt history is used to determine how timely you are with making payments. About 35% of your credit score is based on your debt history.
Debt weight is the amount of debt you have in relation to your available credit. Around 30% of your credit score is based on your debt weight.
Other Factors Affecting Your Credit Score
Factors such as new credit and the types of credit used makeup 10% of your credit score, respectively.
Generally, 15% of your credit score is based on the length of credit, or how long you’ve had an account opened.
Ways to Increase Your Credit Score
To increase your credit score, it is important to pay considerable attention to your debt history and debt weight.
To improve your debt history, do the following:
- Pay off any bills that have gone into collections as soon as possible.
- Keep your accounts current and active for at least two years.
- Get free copies of your credit report from all three credit reporting agencies.
- To improve your debt weight, do the following:
- Maintain lines of credit below 30% of your credit limit.
- Quickly pay down lines of credit that are above 30% of your credit limit.
- Contact your credit card company or a credit counseling service to get lower interest rates
Increasing your credit score may seem like a daunting task but, it’s not impossible. By following the simple methods highlighted above you can dramatically improve your credit score in as little as two years.