*Disclosure: This article is general education, not legal or financial advice. Credit repair can't remove accurate, timely information, results vary by file, and you can dispute errors with the credit bureaus yourself at no cost.*
Having a strong credit profile is a very important part of life in our society. Credit scores are extremely commonplace in all lending institutions and are vital in judging creditworthiness. These scores can be used for things such as employment and rental approvals. With that said, the following article helps readers understand how they can maintain a top-tier credit score while avoiding credit pitfalls.
What makes up your credit score?
Your credit score is calculated slightly differently by each of America's 3 credit bureaus (Experian, Equifax, and TransUnion). Each institution uses unique algorithms to calculate these scores on a scale of 300-850, however, from what industry experts understand, there are 5 main credit score categories:
1) Payment History (35%): By far the largest factor, all bureaus are interested in whether or not you can make your payments on time.
2) Credit Utilization (30%): This metric determines what percentage of your total available credit you are using. When higher balances are present, FICO scores typically suffer. To combat this, keep your balances as low as possible!
3) Age of Credit Accounts (15%): It is understandable that creditors want to see a longer length of credit history, hence the importance of this category. This is calculated by averaging the ages of all your accounts.
4) Credit Mix (10%): Contrary to what some may believe, it is good to carry several different types of credit accounts. Lenders want to see a combination of a mix of installment and revolving debt to see if you can handle different types of credit. Be careful, however, opening too many accounts at once will negatively impact your credit score.
5) Credit Inquiries (10%): Each time you apply for a new credit account, the prospective lender will place an inquiry on your account to view your credit profile. Doing this too often is considered risky behavior to lenders.
What do lenders consider a good credit score?
Credit scores can range from 300 to 850 depending on credit activity. Although each lender works by different standards, a score of 670 is typically considered a good credit score. Those with scores exceeding the 670 benchmark can expect a higher rate of approvals for loans that may be of higher dollar amounts and lower interest rates.
5 ways to maintain a top tier credit score
With a better understanding of how your credit score is devised, here are 5 ways to maintain a top tier credit score. Note that if you are already a top tier credit scorer, you should still pay attention to each of these steps to ensure you maintain a good credit score.
1) Make sure to pay your credit balances on time: As an estimated 35% of your credit score, there is greatly important in paying off your credit accounts on time. Any payment made 30 days or more after the due date will be considered a late payment and will leave a negative mark on your credit report. Each one of these missed/late payments can stay on your report for 7 years! If you have any inaccurate missed/late payments, The Credit Lion can help you rid of them.
2) Reduce the usage of your revolving credit: Make sure you keep the total utilization of your credit at or under 30% for optimal credit scoring. As an example, if you have a rewards credit card with a $10,000 credit limit, it would be in your best interest to not exceed a balance of $3,000. According to BankRate.com, "Most credit experts advise keeping your credit utilization below 30 percent, especially if you want to maintain a good credit score."
3) Try and keep your old revolving accounts in good standing: The age of your credit accounts is a very important factor in your overall credit score. Knowing this, if you have older accounts that you may not currently use as often, please consider keeping them around as the age of the account is vital in holding your credit score at a certain level. It is very difficult to replace aged accounts, however, if our credit specialists identify your profile as a candidate for aging, we can work with you to add aged credit trade lines.
4) Have different types of credit accounts: From a lender's perspective, applicants are seen as more "risk off" when they carefully utilize and pay off various types of credit accounts. They want to see an applicant's ability to not only handle credit card obligations, but also mortgages, car loans, student loans, and other installment type loans.
5) Reduce the frequency of applications for new credit: Each time you apply for new loans/credit accounts, you allow the lender to access a copy of your credit report. In order for them to do that, they need to place a hard inquiry on your account. A higher number of inquiries may be seen as "risky" behavior as it is often associated with financial troubles. If your credit report has any inaccurate, erroneous, or obsolete inquiries, The Credit Lion's team of credit specialists is well versed in removing these inquiries from your credit report.
What to do if there are errors with your credit report?
In the event that there are any inaccurate, erroneous, or obsolete accounts on your credit report, you have the right to seek help in disputing them. Luckily, The Credit Lion has a well-versed team of credit specialists that can any inaccurate inquiries, foreclosures, repossessions, student loans, late payments, missed payments, bankruptcies, charge-offs, public records, collections, judgments, tax Liens, short sales, medical bills, child support, and more. For more information on our credit repair services, please schedule your courtesy consultation with us today!
