Your Guide to a Higher Credit Score -

A strong credit score will make your life a lot easier. Whether you are getting ready to buy a home or a vehicle or just trying to rent a condo, this 3-digit number will undoubtedly be a large part of the process. 

We have compiled a comprehensive guide that will tell you the major components of your score and how to increase it. 

It won't matter if you're starting with no credit history or trying to build it back up. We will get you on the right path to increasing that score. 

 

What is a Credit Score

Your score tells potential lenders how high of a risk you are. People with good scores are highly likely to repay debts and are given loans at very reasonable rates. But the opposite also holds. Higher-risk consumers must pay more for a loan. 

A credit score is assigned to you by one of the 3 major credit bureaus. It is a 3-digit number. The higher, the better. There are 3 major credit bureaus.

• Experian (300-850)
• TransUnion (300-850)
• Equifax (300-850)

Another credit score you know of is a FICO Score, issued by the Fair Isaac Newton Corporation. Many different lenders will use this latter score. Again, the range of scores will fall within 350-800.

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What Do You Need for a Good Score

Here are the scoring ranges for the FICO model

Poor:  300-579

Fair:  580-669

Sound:  670-739

Anything above 740 is great.

Remember that lenders will use different scoring models listed above. They may use different ones each time. This can lead to confusion among consumers. It is always a good idea to ask your lender which credit models they use in their final determination. Sometimes, they may pull 3 and throw out the lowest score. 

What Having Bad Credit Can Mean

When your score is suboptimal, it makes life less convenient. Here are some of the outcomes

• You might not get approved for a car loan or a mortgage.
• If approved, you will have better terms than someone with a good score.
• This means you will have to pay more to borrow money. 
• Credit card choices may be limited, and interest rates will be higher.                                                       
  A lower score will undoubtedly impact your finances and overall life experience negatively. 

  Ready to find your dream home in Denver?
  Let us help you. Call or Text Kenna Real Estate Group at 303-955-4220 to get personalized assistance from our expert real estate agents.

The Biggest Factors That Make Up Your Score 

Remember that all credit modeling companies will calculate scores using slightly different metrics. But we know one thing for sure. They are going to use your credit history to determine what your final 3-digit number is. According to Experian, here are the most essential components. 

Your Payment History (35%)

 

Do you pay your bills on time? If you don't, lenders may report this, negatively impacting your score. 

How Much is Owed (30%)

 

Total the amount of credit card debt you have and compare that to the theoretical maximum you could put on all combined cards. There is a term for this. It's called credit utilization rate. The lower, the better. 

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These 2 items total 65% and thus comprise your score's most significant components. Other factors will impact your score, but they are much smaller. Most consumers should focus on the two factors affecting their score the greatest.

 

How to Increase/Maintain Your Good Credit

 

• Make on-time payments 

Remember that payment history is the most significant factor. When you don't make timely payments, your lender will report them to the credit bureaus. So make at least the minimum payment every month.  

 

The best method is to pay off the entire balance each month. Credit card interest rates are very high. In effect, you're paying these credit card companies extra money on top of your purchases. 

 

Once you start paying on time, you should see improvements in your score. Also, it's good to know that negative factors on your credit will impact your score less as time goes on.

• Keep a Lower Credit Utilization Score

High credit card balances will undoubtedly impact your scores in ways you don't want. Let's discuss the credit utilization rate. 

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Let us help you. Call or Text Kenna Real Estate Group at 303-955-4220 to get personalized assistance from our expert real estate agents.

Imagine you have 2 different credit cards that you use. 

• Card 1: $2000 balance with a limit of $3500
• Card 2: $1500 balance with a limit of $2500 

Your balance between accounts is $3500, with a total credit limit of $6000. The full utilization rate is 58.33%.  

 

This is calculated by dividing your total credit card balance by the credit limit across all cards. Many professionals recommend you aim for something under 30%.   

Final Take-Aways

• The major credit card bureaus will derive your credit score from your credit risk. 
• The 2 most significant factors used to make up your score include "payment history" and "how much you owe across all of your cards." This is your credit utilization rate.
• The easiest way to increase your score quickly is to make payments on time and pay off your credit card balances quickly.