Your credit score is made of five components – credit utilization, payment history, average age of credit, mix of credit, and new credit. Some of these facets of your score are easier to impact and control while some are more of a challenge. Here’s a look at how you can work on your credit score.
How Do You Adjust Your Credit Utilization?
Credit utilization is a big part of your credit score. With payment history, utilization makes up the most of your credit score. If you can moderate your spending or have the money to pay down your debt, you can adjust your credit utilization and boost your score swiftly. Some blogs recommend not going over a 30% utilization on your credit cards, but sticking to a lower percentage may be better.
If you have a total of $20k of credit lines on your cards, $6k in total balances would put you at 30% utilization. If you’re carrying more than that, paying it down to at least 30% should boost your score once the lower utilization is in place for a month. However, maxing out even one card, even if your other cards have low balances, can be bad, too. If possible, pay off all cards in full each month.
How Can You Affect Your Average Age of Credit?
According to The Motley Fool, to have a high credit score, you need to aim for an average age of credit of five years or more. This is a fairly simple piece of your credit score to calculate. Say you have five credit cards – two were opened five years ago, one was opened four years ago, another from two years ago and the last was opened about a year ago. You add the years (5 + 5 + 4 + 2 + 1 = 17) up first. Then you divide that by the number of card accounts (17 / 5 = 3.4 years).
Three years isn’t bad, but it’s not great either. Every time you open or close a credit card account, this average will change. This is why you should think carefully before you close out an older account that you might not use often or has a less than favorable interest rate. In the same way, opening a new account can drop your average. However, once your average is over five, you have more latitude.
How Can You Impact Your Payment History?
Payment history is another big part of your credit score and it’s not something you can alter after the fact. If you’ve missed a payment in the past or made a late payment, that impacts your payment history. The key word there is “history and it’s hard (even downright impossible) to rewrite the past. However, if you recently missed a payment and never have before, there’s a slight chance you can change your fate.
If you’ve always been a conscientious card holder and pay a few days late, you might be able to call customer service at your card issuer and offer an explanation, promise it will never happen again, and make the payment ASAP, and they might give you a one-time pass and not report you to the credit bureaus. Even a one-time late payment can cause your credit score to drop significantly.
How Can You Change Your Credit Mix?
Both your credit mix and new credit each represent 10% of your credit score and both of these are things you can affect with relative ease. Adding new credit to your report can boost your score, but if you add too much new credit, it can lower your score, so it’s a balancing act. Some credit monitoring services can advise you on when it’s optimal to add new credit.
Another 10% is your mix of credit. If you have only credit cards, that’s not much of a mix. However, if you take out a car loan, that adds to your mix. If you add a mortgage to that, that’s more of a mix. However, taking out credit you don’t need is never a good idea. But if you do need a car and can get an advantageous loan, it could boost this part of your credit score.
If you’re not certain what components of your credit score are dragging it down, enrolling in a high-quality credit monitoring service can help you educate yourself on how your actions and choices affect your score. Some services also offer tips on what actions you can take to boost your score and recommend financial productions for which you may qualify.
To find out more about improving your credit score after bankruptcy, contact Credit Score Keys for a free consultation. Call 919-495-2365 today.