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What is  Credit Score?

A credit score is a statistical number that evaluates a consumer's creditworthiness and is based on credit history. Lenders use credit scores to evaluate the probability that an individual will repay his or her debts. A person's credit score ranges from 300 to 850, and the higher the score, the more financially trustworthy a person is considered to be.

Factors That Affect Your Credit Score

  • Payment history. This, along with public records (see below), generally accounts for approximately 35% of your score. A record of late payments on your current and past credit accounts will typically lower your score.
  • Public records Matters of public record such as bankruptcies, judgments, and collection items may lower your score. Be aware of these, even if you can't always avoid them.
  • Length of credit history.In general, a longer credit history is better and can sometimes have a positive impact on your score. Credit history typically accounts for around 15% of your score.
  • New accounts.Opening multiple new accounts in a short period of time may negatively impact your score.
  • Accounts in use.The presence of too many open accounts can have a negative impact on your score, whether you're using the accounts or not. This activity usually makes up approximately 10% of your score.

Improving your credit can be a long, difficult process. But if your FICO score has finally hit 740, there's good reason to celebrate. Although every bank sets its own lending standards, 740 is generally considered the crossover point between good and excellent credit.


How To Improve Your Credit Score

  • Watch those credit card balances: One major factor in your credit score is how much revolving credit you have versus how much you’re actually using. The smaller that percentage is, the better it is for your credit rating. The optimum: 30 percent or lower. To boost your score, “pay down your balances, and keep those balances low,” says Pamela Banks, senior policy counsel for Consumers Union. If you have multiple credit card balances, consolidating them with a personal loan could help your score.
  • Eliminate credit card balancesThe solution to improve your credit score is to gather up all those credit cards with small balances and pay them off, Ulzheimer says. Then select one or two go-to cards that you can use for everything.
  • Leave old debt on your reportSome people erroneously believe that old debt on their credit report is bad. The minute they get their home or car paid off, they’re on the phone trying to get it removed from their credit report. Good debt — debt that you’ve handled well and paid as agreed — is good for your credit. The longer your history of good debt is, the better it is for your score. One of the ways to improve your credit score: Leave old debt and good accounts on as long as possible. This is also a good reason not to close old accounts where you’ve had a solid repayment record.
  • Pay bills on timeIf you’re planning a major purchase (like a home or a car), you might be scrambling to assemble one big chunk of cash. While you’re juggling bills, you don’t want to start paying bills late. Even if you’re sitting on a pile of savings, a drop in your score could scuttle that dream deal. One of the biggest ingredients in a good credit score is simply month after month of plain-vanilla, on-time payments. “Credit scores are determined by what’s in your credit report,” If you’re bad about paying your bills — or paying them on time — it damages your credit and hurts your credit score.
  • Don’t hint at riskSometimes, one of the best ways to improve your credit score is to not do something that could sink it. Two of the biggies are missing payments and suddenly paying less (or charging more) than you normally do, says Dave Jones, retired president of the Association of Independent Consumer Credit Counseling Agencies.
  • Don’t obsessYou should be laser-focused on your credit score when you know you’ll soon need credit. In the interim, pay your bills and use credit responsibly. Your score will reflect these smart spending behaviors.

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