Managing your credit is extremely important. Credit affects your ability to get a Mortgage, the rates you pay on loans and credit cards, and your chances of landing a job or even moving into a new apartment. Keeping a healthy score will help you save money, accomplish life goals, and live a more stress free life.
1) Payment History - 35%
The most important factor is a fairly obvious one. Pay your bills on time. While it is simple advice it is in no way easy. Wages are stagnant and the cost of living is rising. Most people almost always intend to pay off their debts, but sometimes life gets in the way.
Budget - United Teletech has certified financial counselors at every branch location that can help you come up with a budget and spending plan to reach whatever goal you may be working towards
AutoPay - Set every automatic bill to auto pay. Ensuring no payment is ever missed
2) Credit Utilization - 30%
As one of the most confusing and misunderstood factor of your credit score, credit utilization is often the metric that keeps those with average credit scores from having great ones.
Credit Utilization is the total amount you owe divided by the total limit on all of your credit cards and lines of credit. So if you have 2 credit cards that have a limit of 1,000 each and you have a balance of $100 on both, your utilization would be 10%.
Pay Credit Cards before your statement balance is calculated - If your statement is calculate on the 13th of the month. Make sure your payment is made before the 12th. If you pay the balance before the statement calculates your utilization will stay low.
Use personal/home equity loans(not lines of credit) - By taking out a loan to pay off your credit card debt, not only will you save money by paying lower interest rates, but you will also lower your utilization ratio.(As long as you don't close the card out)
3) Average Age of Credit - 15%
This measures the average age of all your credit cards, loans, lines of credit, etc. High average age of credit corresponds to higher credit scores.
Be mindful when opening or closing an account - If you open new credit, your average age will decrease. If you close an old account it will decrease. Always be mindful of that so you can manage your age of history effectively.
Make sure to keep old credit cards open - Credit cards have no maturity and can be a great tool for increasing your age of credit. Always remember that credit cards will be closed automatically if there is no activity. Using your card every couple of months to buy something small and cheap just to ensure your card stays open.
4) Type of Credit - 10%
Make sure you have a healthy mix of credit. The more different types of credit you have the better. Having an Auto Loan, Credit Card, and Student Loan is a good mix. Having an Auto Loan, Home Equity Line of Credit, Credit Card, Student Loan, and Mortgage is better.
5) Hard Inquiries - 10%
Anytime you apply for credit, be a loan, credit card, or mortgage, the financial institution will pull your credit. This is a hard inquiry and they stay on your credit for 2 years. The more hard inquiries you have the lower your score will be.
Get pre-approved when buying a car - Applying for a car at dealership can mean your credit is pulled up to 10 times in one day. While you are allowed a time frame to shop around for the best rate, it rarely works perfectly. Getting pre-approved before buying a car can save you from dozens of hard inquiries.
Consider the ramifications when applying for credit - If you are applying for a mortgage next year, don't apply for seven credit cards. Always remember applying for credit negatively affects your score. So apply for credit wisely.