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Credit History: Improving & Maintaining Your Credit Score

Mortgage Broker

To make yourself look even better, allow your credit card accounts to show a balance owing on your monthly statement, and then once it is issued, pay off the entire balance owing before the payment due date. Many of us will buy something on our credit card, then within the day, pay it off. Remember, a credit report showcases your ability to borrow money and pay it back on time. It's tough to increase your credit score if all your credit card statements show $0 balance owing and $0 minimum payment because you've paid everything off before your statement is even calculated and released!

Now with that, I want to remind you of the 5 main factors that go into calculating a credit score and the areas you need to focus on:

  1. Payment History

  2. Utilization

  3. History

  4. New Credit

  5. Credit Mix

1.) Payment History

When it comes to making late payments, the longer you take to make your monthly payment, the worse impact it has on your credit score. This does not mean making full payments, as long as you can pay the monthly minimum you will not be negatively affecting your score unless you are borrowing more than 75% of your total available credit. Yes, if you can afford to pay the balance owing, do that, but do not let your payment due date pass by without paying at least the minimum!

TIP: set reminders in your phone one week before your monthly payment due date (everyone's due dates are different and are not necessarily at the end of the month so make sure it's accurate).

Also, withholding payments because you are in dispute with someone over how much you owe can hurt your score. If the lender reports your payment as late, even though it's in dispute, a reporting agency is not going to know and it will decrease your score regardless if you win the dispute or not. So, if you are going to miss a payment or don't agree with how much you owe, call! Speaking with a lender like your cell phone provider and explaining your situation and temporarily changing your payment plan allowing you to pay less now and more later can avoid them reporting to agencies that payments are late or below the minimum. Doing this will allow you to maintain your credit score and not decrease it.

2.) Utilization

Another vital factor that goes into calculating your credit score is your use of available credit. Add up all your available credit through lines of credit, all credit cards, and loans. Then, look at how much of that available credit you actually use, not your total available. Using all or most of it may not decrease your score, especially if you are making regular payments. However, lenders may see this as a risk and avoid lending you anymore with the concern you will not be able to pay them back, as well as everyone else.

To significantly increase your credit score, you need to use 10%-50% of all available credit. This doesn't mean once you go over 50% you wont be increasing your score, all it means is that if you want to increase it in a sure way, use 50% or less. Keep in mind the beginning notes though, you don't want to have $0's across the board, still show you use your credit but in a manageable way.

3.) History

The length of credit history is also important as the longer you've had an account open WITH activity on it, the better your score. This doesn't mean a credit card since high school that you haven't made a purchase on in 5 years. You have to still be actively using it and paying it off. Credit accounts that are new or old accounts transferred to new ones, can contribute to a lower credit score. Do not cancel accounts or credit cards if there is no annual fee, just use it randomly maybe once every second month or so for small purchases.

4.) New Credit

There are two different types of inquires and they are refereed to as soft hits and hard hits. Hard hits occur when you apply for a credit card, have inquires from landlords you are looking to rent from as well as inquires from employers. Soft hits are inquires such as requesting your own credit report, or businesses like your bank updating existing information to see if you qualify for promotions, increases, etc.

Whenever someone views your credit report through a "hard hit" it is noted on your credit report. Too many hard hits and names showing up on your credit report in a short amount of time may signal to a lender that you are desperately trying to gain credit and are not being approved anywhere. "Soft hits" do not affect your credit report at all and cannot be viewed by anyone other than yourself.

TIP: When looking for a new car or a mortgage and your credit report is being constantly requested, try and do it all within the span of two weeks. All inquiries related to auto or mortgage loans made within a two-week time frame are bundled together and treated as a single "hard hit".

5.) Credit Mix

If you only use credit cards, or only have your cell phone bill on your credit report it may be causing your low score. Having a mix of different types of credit such as credit cards, student loans or auto loans mixed with cell phone accounts, can help boost your score. But remember moderation, half a dozen credit cards, line of credit, auto loans, personal loans, mortgages, and student loans all showing up for one person can be interpreted negatively by some lenders.

If you want to see more of this information and where some of it was gathered from, visit the following site.


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