Your credit score can determine not only if you get a loan, but also how much that loan will cost you in interest. That number can also affect your chances of getting insurance, certain jobs and sometimes even a cell phone, as the use of credit scores spreads beyond traditional lenders.
A credit rating is a numeric score — between 300 and 850, with 850 being the best — that summarizes the information on your credit report. Creditors use this information as a forecast of how you will repay your debt or other obligations. The credit score is determined by these five factors:
- Payment history (35 percent of score). You’ll benefit from paying your accounts on time.
- Outstanding debt (30 percent of score). Keep a low utilization level — the percentage of available credit being used for each card.
- Length of credit (15 percent of score) Keeping accounts for a long time is helpful.
- Credit mix (10 percent of score) The more diverse types of credit, the better.
- Search for credit (10 percent of score) Inquiring about or opening a lot of new loans can lower your score.
Here are steps you can take to improve your credit score:
- Pay your bills on time.
- Pay down balances on credit cards and other “revolving credit,” and keep them down.
- Apply for and open new credit accounts only as needed. Inquiring about or opening a host of new loans can hurt your score.
- Don’t close unused credit cards as a short-term strategy to raise your score. This approach could actually backfire and lower your score.
- Check your own credit reports for accuracy.