A credit score is used to determine your eligibility for a number of things in life. From a mortgage to purchase your family home to helping a potential employer determine if you should be hired for a job, your credit score is a way creditors and others rank your financial credibility. The factors of your credit score are wide-ranging, each accounting for a percentage of the number. While your credit score may be used as a guide for creditors to determine if they’re willing to take a risk on you, there are ways to better your score.
What is a Credit Score?
Before we delve into if your credit score needs help and how to do it, let’s consider what elements work together to produce the number. One of the most recognized types of credit score is FICO Scores, created by the Fair Isaac Corporation. This credit score can range between 300-850, with 300 being the lowest and signifying the need for great improvement.
Lenders, banks, and credit card companies all look to your credit score to determine whether or not to offer you credit, such as a mortgage or credit card, and under what terms, like the interest rate or down payment.
What is a Good Credit Score?
For FICO Scores, a credit score of 700 or above is typically considered good. A score of 800 or above is considered excellent. Roughly two-thirds of Americans have a good credit score. FICO Score ratings are below:
- Very poor: Credit score 300-579, roughly 17 percent of Americans
- Fair: Credit score 580-669, roughly 20.2 percent of Americans
- Good: Credit score 670-739, roughly 21.5 percent of Americans
- Very good: Credit score 740-799, roughly 18.2 percent of Americans
- Exceptional: Credit score 800-850, roughly 19.9 percent of Americans
Contrary to popular belief, checking your own credit score does not lower the number, and it’s beneficial to check the number a few times a year. Not only will you keep up with any change in your score, but you can also monitor your credit history for any fraudulent transactions and dispute claims or accounts that you did not open.
Factors of Your Credit Score
No matter where your credit score falls, all scores are determined by the same factors. FICO considers five components to formulate your score.
1. Payment History
An estimated 35 percent of your credit score is formulated by your payment history. By paying your bills on time, you can increase your score. Late or non-payments will quickly cause your score to suffer.
2. Credit Utilization
Having a loan, as with a home or car, isn’t a financially bad sign. Racking up large amounts of credit card debt, however, can be viewed poorly by creditors and will negatively impact your credit score. Lenders specifically look at how close you are to maxing out each of your cards. The goal is to never go beyond a 30 percent debt to availability ratio. So, if you have a credit card with a limit of $1,000, you don’t want your balance to go beyond $300. Credit utilization constitutes for roughly 30 percent of your credit score.
3. Length of Credit History
Interest rates are higher when you first start building your credit. Lenders are skeptical that you’ll be able to pay off the balance because you haven’t built a lengthy credit history. As you obtain credit cards, keep your balances low, and pay bills on time, you build your credit history. The length of your credit history accounts for 15 percent of your credit score.
4. New Credit
Obtaining a loan doesn’t necessarily damage your credit score, but opening multiple lines of credit simultaneously gives lenders reason to worry. Opening several credit cards or acquiring loans at once will cause your credit score to take a hit. New credit represents 10 percent of your credit score.
5. Credit Mix
Aim to have a variety of credit types. Acquiring a mortgage, auto loan, student loans, and a credit card or two will serve your credit score much better than having mostly credit card debt. Credit mix constitutes 10 percent of your credit score.
Your race, color, religion, national origin, sex or marital status are not factors of credit score.
How to Improve Credit Score and Pay Off Debt
The average personal debt in America is up to $38,000, with 25 percent being credit card debt. Nearly half of American families carry credit card debt, and the burden can become overwhelming. The average credit card-holding household faces a $15,561 balance, making it easy to feel like the amount never dwindles, even as you make payments. For many of those families, credit card debt doesn’t mean family vacations or new wardrobes. Many of those ever-increasing balances are the product of the cost of living increasing 17 percent over the past decade, and the cost of medical care skyrocketing 33 percent. For some families, credit card debt resembles necessary prescriptions, groceries, and a tank of gas to get to work.
Christian Debt Counselors understand the stress that comes with rising credit card balances and a lowering credit score. Our compassionate team does not rely on a one-size-fits-all plan. We partner with you, listen to your needs, and evaluate your situation to offer one of our many debt solutions, including:
- Debt Consolidation
- Debt Settlement
- Credit Counseling
- FDCPA Violation Reviews
- Bankruptcy Consultations
- Non-Profit Debt Management
- Financial Literacy
Unlike many organizations that claim to help you get out of debt by offering a large loan with a high interest rate, Christian Debt Counselors Service Providers consolidate your debts without the need for you to obtain a loan.
The numbers that represent your debt and credit score do not represent you. Your story is unique, and our compassionate counselors are ready to find the solution that best fits your challenge. Contact Christian Debt Counselors today to find out how we can help eliminate your financial stress, improve your credit score, and make your debt more manageable.