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Best Ways to Improve Your Credit Scores to Get Approved

What is a good credit score and how do you earn one?  The quality of your credit score depends on how you use your credit lines.  If you’re applying for a mortgage, many lenders require that you have a score higher than 620, but they reserve the best pricing for scores over 740 or even 760.  To improve your credit, it’s important to know about the individual factors that make up your scores. 

Payment History

Payment history determines 35% of your credit score and is based on your ability to make on-time payments to your creditors for the life of the credit line.

In order to improve in this category you should: 

  • Make your payments on time, every time

  • Pay more than the minimum amounts on revolving debts

  • Resolve the debts that will continue to have a negative impact, for example,  tax liens, judgments, or student loans in default

  • Certain types of collections and even bankruptcy and foreclosure information can only appear on your report for 7 to 10 years before they are removed, so keep that in mind when deciding what to pay off and bring current first

  • Derogatory payment history information affects your scores based on how late the payments were, how much was owed, how recently it was delinquent, and how many accounts were affected

 

 

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Amounts Owed

Amount owed determines 30% of your credit score and is based on how much of your available credit is in use. 

In order to improve in this category you should: 

  • Keep your balances on revolving accounts below 30% of the total credit limit

  • Periodically request for your credit lines to be increased, in order to lower your overall utilization percentage

  • Consider consolidating revolving accounts into a single installment debt, but don’t close the accounts as that would lower your available credit.

  • Having a high utilization percentage negatively impacts your credit scores, and having a low utilization percentage positively impacts your credit scores. Not utilizing your available credit at all though doesn’t help your scores as much as the responsible use of credit does.

Length of Credit History

Length of your credit history determines 15% of your credit score and is determined by how long you have been utilizing credit. 

In order to improve in this category you should: 

  • Keep your oldest accounts open as they increase the average age of your accounts

  • Avoid opening new accounts unnecessarily, as they will decrease the average age of your accounts

  • Also, make sure that your creditors don’t close your accounts due to inactivity by making small transactions and paying them off in full each month

  • Having a long credit history is helpful, but even if your history isn’t that long you can still achieve a high credit score depending on the other factors.

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Credit Mix

Credit mix makes up 10% of your credit score and takes into account your mix of revolving, installment, and mortgage accounts.

In order to improve in this category you should:

  • Make sure you have a balanced mix of installment and revolving debt to show that you responsibly handle different types of obligations

  • Have a reasonable and manageable number of accounts overall.  If you have too many accounts open, it can have a negative impact on your scores

  • Expand your credit experience to include different types of accounts and pay them on time

  • It’s worth noting that closing an account doesn’t necessarily remove it from your report.  The credit history information is still reported and taken into account when your scores are calculated

 

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New Credit Lines

New credit lines determine 10% of your credit score and reflect the inquiries and applications for new credit that you have initiated. 

In order to improve in this category you should:

  • Know that requesting and checking your own report won’t negatively impact your scores, and regularly reviewing your report can help identify errors and fraud

  • Don’t open several new accounts in a short period of time, because that can lower the average age of your accounts in addition to all the new inquiries.

  • Remember, inquiries stay on your credit report for up to 2 years, but shopping for a mortgage or an auto loan with multiple lenders is often treated as a single inquiry.

When opening new credit accounts, do it conservatively and conscientiously.  Keep your credit inquiries to a minimum and space them out over time so that the impact on your credit isn’t as severe.