The vast majority of consumers have an “ok” credit score. It is acceptable, but it is neither tremendously high nor tremendously low. It is not high enough where they could buy an aircraft carrier on their signature alone, but it is not bad enough where even 7-11 requires cash for a pack of gum.
This is not a bad situation to be in, if you find yourself within that majority, but with a bit of additional effort and knowledge, you can increase your credit score. What would that mean for you? Know live score that your credit score is being in a lot of different places today, and many more than you would think because it is not just for pure financial transactions anymore. Many car insurance companies are looking at an applicant’s credit score to determine what insurance rate to charge, where the insurance companies claim they have statistical evidence proving that people with lower credit scores file more claims. If you are looking for a new job, especially one in the higher ranks or upper management of a company, many employers are now using a candidate’s credit score as the deciding factor if all else is pretty much equal.
And of course with a higher credit score, you get the preferred loan rate when you are shopping for that new car, or a much better rate if you apply for a mortgage or go to refinance your existing mortgage, all of which can add up to hundreds and even thousands of dollars per year.
But keep in mind that raising your credit score does not happen overnight. Your credit score is a composite score based on your credit history, and a “history” or even a “trend” is not created overnight, but is seen as an established pattern that you follow.
It is probably no surprise to you that the single largest factor that will influence your credit score is your payment history. Do you pay your bills on time with at least the minimum payment each month? If you have not been doing this, now is a great time to start that trend, since this factor accounts for almost 35% of your overall credit score.
The second largest factor affecting your credit score is the total amount of all your accounts compared to your credit limit on those credit cards. If all your credit cards are near their credit limit or maxed out most of the time, this is definitely bad for your credit score. The standard rule of thumb is to keep your balance, if you carry a balance at all, to about 25-30% of your credit limit. This shows that you are using credit responsibly and will improve your credit score.
If you have old accounts that are paid off, some people say to close them and it will help your credit score. This is a myth. Those accounts, if you kept them in good standing, factor into your score and become a part of your credit history. Closing those accounts eliminates that part of your credit history which can actually lower your score.