If you look like most people, your credit score is something you don’t often think about. You probably know Small Lender that you need a good credit score to be eligible for a loan or to get the best rate on a credit card, but those are not things you have to do every day. Usually, this number does not even occur to you.

It should, however. The truth is that a bad credit score can affect your life in all sorts of ways. Many types of companies, from insurers to potential employers, check your credit score to get an idea of ​​how reliable you are. If your credit score is low, this can damage your chances of getting a job, an apartment, a mobile contract or a decent Small Lender rate on your car insurance policy.

Fortunately, a bad credit score is not a permanent problem. By following a few simple rules, you can clean up your credit history and increase that credit score. Over time, you can raise your score to a level that will help you, instead of hurting you.

How credit scores work

How credit scores work

To know how you can increase your credit score, you need to know how it is calculated, especially since there are many credit score myths out there. Your credit score is based on five important factors:

  • Payment history. The first thing a lender wants to know is whether you repay the money that you borrow. If you take out a loan and pay it on time, your score will increase. If you pay late or miss payments, your score will drop. Your payment history accounts for 35% of your total credit score.
  • Amount of the debt. It is not so difficult for the lenders to see that you owe some money to other lenders. However, if you seem to use as much credit as you can get, they see it as a red flag. The use of every part of your available credit is a sign that you are too thin and that Small Lender will probably miss payments in the future. The amount you owe on credit cards and loans amounts to 30% of your credit score.
  • Length of credit history. If you have been using credit for a long time, lenders see that as a positive sign. If you’ve been borrowing money for years and paying it back, that’s a good sign that you keep doing it. Your credit score factors in the era of all your accounts and how long it has been since you used them. Your credit history accounts for 15% of your credit score.
  • Credit Mix. Lenders would like to see that you are good at paying all kinds of debts. A borrower with different types of loans, such as a credit card, a car loan, and a mortgage, looks better than someone with only two or three credit cards. Your credit score factors in both current loans and those that have already been paid off. Together they only make up about 10% of your score, but they are more important if you don’t have much else to base your score on.
  • New credit applications. If you take out several new loans at the same time, that is a sign that you are desperately looking for money. This means that you probably find it difficult to repay what you borrow. Every time you apply for a new loan, it compromises your credit score – but only a little, and only briefly. New credit applications count for 10% of your score and disappear within a year.

Credit score , the company responsible for credit scores, adds all of these factors to calculate your score. It then assigns you a number between 300 and 850. With an excellent credit score – at least 780 – you get the best rates for most loans. A bad credit score of 600 or less, on the other hand, means that you cannot get a loan at all.

Improve your credit score

Improve your credit score

There is no quick solution for a bad credit score. Building up good credit is a bit like losing weight; it takes time to get in poor condition and it takes time to get out. However, as soon as you start crediting responsibly, you will see a slow, steady increase in your score over time.