Your credit score is a number that determines your creditworthiness and impacts everything from the interest rate you are offered on a loan to the rent you are charged for an apartment. Lenders use this number to determine whether you’re a good candidate for a loan and, if so, what interest rate they’ll offer you.
Understanding Your Credit Score
Your credit score can range from 300 to 850. The higher your score, the better your creditworthiness, and you will likely enjoy a lower interest rate when applying for loans. Here’s a breakdown of where scores fall within that range:
- 300-579: Poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very Good
- 800-850: Excellent
What Impacts My Score?
There are five main factors that influence your credit score: payment history (35%), credit utilization (30%), length of credit history (15%), new credit (10%), and credit mix (10%). Let’s take a closer look at how each one affects your credit score.
Your payment history has the biggest impact on your score — 35%, to be exact. That’s because it’s a good indicator of future behavior. So, when you habitually make late payments or miss payments altogether, your score will suffer. On the other hand, if you have a long history of timely payments, your score will be impacted positively.
Credit utilization is how much you owe on all your credit accounts and is expressed as a percentage. It is calculated by dividing your current balances by your total credit limits. For example, let’s say you have two credit cards with limits of $5,000 each for a total credit limit of $10,000. If you carry a balance of $2,500 across both cards, your credit utilization would be 25%.
Length of Credit History
The length of your credit history makes up 15% of your score. That’s because lenders like to see a track record of responsible borrowing behavior. So, if you have several years’ worth of timely payments, your score will be higher than someone who just opened their first line of credit.
Opening several new lines of credit in quick succession can make you look like a riskier borrower — especially if you don’t have much else in terms of borrowing history. That’s why 10% of your score is based on new credit accounts and inquiries into your report. So if you’re planning on applying for new lines of credit, try to space out those applications over several months to avoid any negative impact on your score.
The final factor that impacts your score is credit mix, with 10%. It is based on what kind of debt you have. A healthy mix will work in your favor. That means having both installment loans (loans with set terms like auto loans or mortgages) and revolving debt (debt with no set terms like lines of credit or credit cards). Having both types of credit shows lenders that you can manage different types of debts responsibly.
How Can You Improve Your Credit Score if Your Score Is Poor?
If your credit score is on the lower end, there are several steps you can take to improve it.
- Make sure to pay all your bills on time and work toward paying off any existing debt.
- Consider opening a secured credit line or getting a secured credit card from a local bank. A secured credit line is a type of loan where you put down collateral, such as a savings account, in exchange for the loan. A secured credit card helps you build a positive payment history over time.
- It’s also important to monitor your credit report for any errors and dispute them as needed.
- Lines of credit where you take a flexible loan with a defined maximum also help improve your score in the long run.
How Ascent Network Helps Improve Your Credit score
Understanding what impacts your credit score is important because it helps you make informed decisions about managing your finances. By improving factors like payment history and credit utilization, you can increase your chances of getting approved for loans and securing lower interest rates.
Over the years, Ascent Network has helped many people with bad credit improve their credit scores, and their scores improved by 100+. Not only do we help you with credit repair and improving your score, but we also show you how to keep your credit score up.
The Bottom Line
Remember, even if some factors are out of your control, there are still things you can do to improve your overall creditworthiness in the eyes of lenders. By following these guidelines, you can ensure that you have a strong credit score and access to the best rates and terms when applying for loans in the future.
A more positive outlook toward a more financially secure future starts today. Give the Ascent Network a call today at 1-877-871-2400. Ascent Network helps consumers all over the United States and is available locally in Huntington Beach, CA, Coachella Valley, Palm Springs, Cathedral City, Rancho Mirage, Palm Desert, Desert Hot Springs, Indian Wells, La Quinta, Indio, and Thousand Palms.