Breaking Down Your Credit Report 

Learning how to raise your credit score isn’t a hard process to understand but it take time to put a plan into action and make it successful. Before you can start the process of improving your credit, you need to understand the factors that control your credit score. Your credit score is based on 5 things: your payment history, the amount of money you owe,  the length of your credit history, how much new credit to you have, and the different types of credit you use. According to this chart from FICO, it breaks down like this:

So, based on this information we can chart a course on how to raise your credit score. This information will apply to people who already have credit; I will cover how to start the process of even getting credit in the first place in this article: How to Even Begin Getting Credit.

Step One: Pay every single bill on time, every time. As you can see, this accounts for 35% of your credit score, so lenders obviously consider this a major component of responsible credit use. It is your best interest to not get over extended, but if for any reason, you can’t pay a bill on time, contact the company. This includes credit card companies, banks, mortgage companies, and even the electric company. If you can’t pay, call them up, explain the situation and see if you can skip a month’s payment. This may not work every time, but many companies have the ability to allow you to skip a payment and this will be much better than getting a ding on your credit report.

Step Two:  Reduce the amount of money you owe. It’s probably not possible to put down $100,000 on your house, but definitely start banging away on any smaller debts you owe. Pay down what you can. Start now, pay down credit cards, student loans, personal loans, car loans, and anywhere else you owe money. This is 30% of your credit report so get busy!

Step Three: This step isn’t available to everyone, only to people that may have some older credit cards available that they aren’t using. Since 15% of your credit history is based on the age of your credit history, you want to show as long a credit history as possible. One easy trick to do this is to keep some older credit cards and occasionally use them. Always pay off the balance quickly, but this shows that you have “active” credit going back a long time. It’s simple, it’s easy, it’s effective.

Step Four:  Stop applying for new credit. If all of sudden, you show a spike in applying for new credit this will damage your credit. It’s only 10% of your credit score but when it comes to how to raise your credit score, we need every point we can get our hands on. Now, don’t worry if you’re shopping around for different house or car loans, because the credit reporting companies expect this and make allowances for these types of loan shopping around. But if you do go shopping for a car or house loan, you want to make all your loan applications in a short time frame, so that all the loan applications are obviously for the same purchase.

Step Five: Vary the types of credit you have available. This may not be something that most people will use in the short term to improve credit, but it does factor into 10% of your score so it’s worth mentioning. It reflects better on your credit score if you have different types credit available like a house loan, a car loan, credit cards and a personal loan, this shows that you can use different types of credit responsibly which makes you a lower risk. Now, this does not mean you should run out and get a car loan because it would help to improve your credit because this would be a violation of Step Four, but I do think it’s important to understand how credit actually works.

I hope this article helps you figure out how to raise your credit score. It’s really not that difficult, it is simply making small incremental steps that when taken together will begin to improve your credit score. You start to give the impression of good solid credit use so that you can then be considered a good credit risk and get the best loan rates available.