Improving your credit score could take a while. But it’s worth it.

Sourced from: www.fool.com

You know what’s the worst?  Bad credit.  It affects everything!  You want to get a car loan?  Trying to get a mortgage to buy a house?  Need to open a new credit card?  Unfortunately, bad credit makes it tough to get approved for a loan, and even if you do, you’re likely to get stuck with a super high interest rate.  Fortunately, though, you can put an end to your bad credit and turn things around!  Once you have a better idea of what’s influencing your credit score, you’ll be able to make responsible financial decisions that can literally change your life.

Although improving your credit score doesn’t happen overnight, once you start the process, you may see an impact as soon as within a few months.  Depending on where you start and how far you want to go, it could take a few years.  Don’t let that deter you, though, from making positive changes now.  Slowly but surely, the black marks on your credit report will fall off, and positive marks will begin to emerge.  Don’t give up!

There are five main factors that go in to determining your credit score.  The most important: your payment history.  It can account for up to 35-41% of your score!  Make sure to pay your bills on time every month and you will start to see an immediate impact on your overall score.  We recommend setting up automatic payments or reminders to take care of this.

Of course, if you don’t have the funds to pay what you owe, you will need to take a hard look at your budget and make some changes.  You can either spend less, make more, or do a little bit (or a lot) of both.

Another big factor in your overall credit score is your credit utilization rate.  This makes up 20-30% of your overall score, and is considered the relationship between how much you spend each month and what your credit limits are.  Lenders prefer that you only use 30% or less of your credit limit each month, otherwise they consider that you depend too much on credit to support your lifestyle.

To improve your credit utilization rate, consider spreading your spending to multiple cards so that each remains below the 30% threshold.  Or, use cash more often and your cards less often.  Another great option is to pay your bill twice a month.  Since credit bureaus only get balance and payment updates one time per month, if you’ve paid down your balance halfway (and the rest at the end of the month), it’ll appear that you spent much less than you actually did.

The last three major factors that influence your credit score are your credit mix, your average account age, and the number of hard inquiries to your credit.  Having multiple types of credit (personal loan, car loan, mortgage) helps with your credit mix, and older accounts help with your average account age.  Don’t close old credit card accounts unless they’re charging an annual fee.  Hard inquiries happen every time you try to open a new credit account.  Rate shopping is an exception, though, so all inquiries made within a 14-45 day period are considered a single inquiry.