Your credit score can be the difference between being approved for a loan, getting a lower interest rate, and saving you a money in the future. But what does your credit score mean? Your credit score is based simply on how well you pay back debt and can handle credit. Your score is based on how much debt you are in, how long you’ve had it, what kind of debt it is, and how well you’ve paid it.
So whats the easiest way to improve your credit score?
Lets start by showing you how your credit score is being calculated* and broken down:
- 35% is from your payment history
- 30% is from amounts owed
- 15% is length of credit history
- 10% is new credit
- 10% is credit mix
As you can see, your credit score has nothing to do with the amount of money in your bank. This means that no matter what you are being paid, you can still have a great credit score!
Since 35% is based off of your payment history the #1 way to improve your credit score is to make sure you have great payment history.
You can do this by paying your bills on time, getting current on any past due debt, and understanding that if your account has gone to collections and filed in court, it will stay on your credit report for seven years, even if you pay it off.
If you want to start improving your credit score today, begin with your payment history, after all, it is 35% of how your FICO score is calculated.