Raising your credit score can be a complex process that involves limiting hard inquiries, making timely payments, lowering your credit utilization, and other factors. But, as with any journey, you really only need to focus on taking the first step. So what do the three major credit bureaus look for? How can you use credit responsibly to appease their credit scoring models? Let’s find out!
Building a Strong Credit Score
1. Making On-Time Payments
Payment history represents 35% of your FICO Score and 40% of your VantageScore. When you check your credit report, it’s usually the #1 reason you receive a good score or a bad score. Any late payments or missed payments in your credit history will be noted in your file and will make it more difficult for you to get a higher credit score.
2. Monitor Your Credit History
One of the best ways to get a better credit score is to check your credit history, then adjust your credit decisions accordingly. While free credit reports aren’t perfect, they can give you a glimpse into your financial health and help you develop better credit habits.
3. Reduce Credit Card Balances
High credit card balances increase your credit utilization ratio, which has a significant impact on your credit score. Depending on the model, utilization rate affects 20% to 30% of your score. So reducing credit balances and ensuring you pay bills off quickly is crucial.
4. Build a Healthy Credit Mix
Credit mix is about 10% of your score, so it’s important to have a diverse mix of credit accounts. People typically have a mortgage, an auto loan, a couple credit cards, and a few other accounts open, all of which contribute to a long credit history and a higher score.
5. Limit Hard Credit Inquiries
When you open a new credit card account or apply for an installment loan, agencies are likely to check your credit report. Called a hard pull or a hard credit check, these inquiries will often lower your credit score. Even though this reduction usually only lasts one year, it can affect your ability to increase your credit limit, get a car loan, or pursue other financial goals.
Need Help Improving Your Credit Score?
If you don’t have a great credit file but still want to plan for your financial future, Intandem Credit Union in Grand Rapids, MI is here to help. We can discuss borrowing options, talk about interest rates, and help to identify factors that may negatively affect your score. Call us now to learn how we’ve become the area’s most trusted credit experts.