Your credit score is calculated by analyzing the contents of your credit reports from the three major credit bureaus. There are many different credit scoring algorithms, or credit scoring models, used to determine your score based on the specifics of your credit history. FICO and VantageScore are two of the most popular companies generating credit scores. They each have various calculations, and over 1,000 different credit scores currently exist.
Although credit-scoring companies and individual lenders each calculate credit scores a bit differently, they generally take the following factors into consideration: payment history, credit utilization, credit mix, credit inquiries and credit age.
Factors Used to Calculate Your Credit Score
Payment History: Includes on-time payments, missed payments, how many days past-due payments are (if any), and accounts in collections. Payments made more than 30 days late are reported as negative information and adversely impact your credit score.
Amounts Owed and Credit Utilization: Your outstanding balance versus your credit limit constitutes your credit utilization ratio. Credit score calculations include your credit utilization ratio for individual accounts and for all of your accounts, which is your overall utilization. Ideally, your ratio should stay below 10%.
Credit Mix: This refers to the types of accounts on your credit report. A mix of revolving accounts (credit cards or lines of credit) and installment accounts (mortgages, personal loans, auto loans) is ideal.
Credit Inquiries: This reflects the number of times you’ve applied for credit in the past year. Lenders want to ensure you are not seeking additional credit because of financial turmoil. However, scoring models are sophisticated enough to decipher if you are shopping around for the best rate for things like mortgages or auto loans (but not credit cards).
New Credit/Length of Credit History: Credit scores often take into consideration how many new accounts you’ve opened recently. New accounts can affect the length of your credit history. A long history of open and active accounts with on-time payments is preferred.
Quick is a relative word in credit repairing, and if you have big negative marks, including foreclosures, short sales, bankruptcies, tax liens, charge-offs, and judgments, it will take up to 7 years to erase them off your report.
However, here are a couple of things you can do:
1. Pay small pending balances… read full answer: If you have multiple cards, start with a couple having low balances, ranging in $50 to $200. Clearing these small balances will indicate to the credit agencies that you’re trying to pay the debt.
2. Ask for credit limit increase: Try to choose an old card, one with a good payment history. Increasing your credit limit is likely to lower your debt utilization, and net you some credit points.
3. Use traditional 30% usage formula: It is best if you stop maxing out your card, and I understand that it could be difficult, so start bringing your credit usage down gradually until you reach 30% utilization.
4. Use credit card for Netflix or similar utility services and repay it full: If you don’t have an excellent bill payment history, start using your card for small charge-offs like Netflix service and pay it off in full.
These simple acts will indicate good credit behavior and will go far in repairing your credit. Prior to using any of these tips, get your credit report from all the three bureaus and look for errors.
Correcting credit errors can boost your credit score quickly, at least 60 days.
Credit scores fluctuate all the time, and unless the variation is substantial, this is no cause for alarm. The are several factors that impact your credit score on a daily basis, the single most important component being payment history. Other factors include credit utilization, hard credit inquiries, derogatory marks, age on your credit standing and your experience. You can learn more at: … read full answerhttps://wallethub.com/edu/what-affects-your-credit-score/19605/.
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