Understanding a Credit Score
Understanding a credit report score is important for all borrowers. This number, often called a FICO score, can be anywhere from 300 to 900, with higher being better. It's the standard item lenders use when processing loan applications. It can change all the time, depending on your actions.
Length of Your Credit History
One important aspect of your score is the length of your credit history, meaning how long it's been since you were approved for your longest-held credit account. When you close that oldest credit line, your history length shrinks. Keep that in mind before doing so.
Amount of Debt You Carry
How much money you owe also affects your score. It especially matters how much debt you have in relation to have much credit you have open. What you owe on installment loans, such as auto loans, compared to the original balance counts too. Lenders like to see a lot of open credit and not a lot of debt. Open credit implies trust.
Past Due Payments
Something that can really kill your credit score is having a lot of past-due payments, which usually means they are late by at least 30 days. Charge-offs can really hurt you too. Lenders don't like to take risks on people who haven't repaid as agreed in the past.
Hard Credit Inquiries
Every time you apply for a loan, it shows up on your credit report as a hard inquiry, meaning the lender took a look at your report.
If you've applied for a lot of credit recently, it can be detrimental to your score. It is a sign that you're either looking to borrow money from lots of different lenders or you're having trouble getting approved.
Improving Your Score
One of the best ways to improve your score is simply to pay all of your bills on time, all the time. This will show that you are a responsible borrower and worthy of being trusted with new credit.