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Why Is Your Credit Score Important and How to Improve it?

Your credit score is so powerful and it will follow you wherever you go. Credit scores range from 300 to 850. This number shows your history of paying off debt. This is how companies such as auto loans, mortgages, and credit cards determine if you are approved and what interest rate you will pay. You can use this calculator to determine your monthly payments based on your credit score here. It is important to take steps to increase your credit score today so you can receive the benefits of lower payments. 

Scores range from 300 to 850

  •  800 = Exceptional
  •  740-799 = Very Good
  •  670-739 = Good
  •  580-669 = Fair
  •  <580 = Poor

I was able to increase my credit score by 84 points after following these tips. If you would like credit repair services, please contact us. 

You have to understand what your credit score is based on. Your credit score is based on your payment history, balances carried, credit history (age of your accounts), mix of accounts (auto, mortgage, credit card, student loans), inquiries, and effect of time. Your credit score is mostly affected based on actions in the past two years and any negative information over the past 7 years. Negative remarks remain on your credit score for 7 years unless you work with a professional to see if they can be disputed and removed. You can also try to dispute items on your own through Credit Karma. Even when you pay off collections, the account may still remain on your credit. Your credit score is so important that I feel like it should be taught to small children in elementary school. They say good credit leads to a better lifestyle! 

  •  35% = Repayment history
  •  30% = Amount owed to lenders
  •  15% = Credit history length
  •  10% = Types of credit accounts
  •  10% = New credit accounts

Some important tips are: 

1. Rule 1. Pay your bills on time, every time. 

Set up payment reminders or set up automatic payments. 

2. Rule 2. Keep your credit card utilization under 30%.

I would say under 20% for better results. This occurs when you pay down your overall debt or credit balance. Credit Karma has tools such as a credit simulator and debt repayment calculator. You can explore it here. If you want to decrease your utilization and are in good standing you can ask for an increase in your credit limit on existing credit cards. You can also request a secured credit card to try to improve your credit. I called my credit card companies individually and asked them for a credit increase.  

3. Rule 3. Request to see a free report of your credit.

Your score will not be affected when you check it but it is affected when creditors check. If you have too many inquiries at once, it can lower your score so try not to open too many new credit cards at once. Keep in mind that even small bills may be reported on your credit. It is important to request a credit report and see what is on it. Make sure there are no mistakes and no one falsely put anything in your name. If you find any errors, you must dispute them. You can dispute any errors by contacting the credit bureau or using Credit Karma. Credit Karma is very helpful at showing estimates of your credit score. Keep in mind that it is only an estimate and you should receive a free copy from Transunion, Experian, and Equifax once a year.

4. Rule 4. Know the difference between good and bad debt.

Good debt is meant to enhance your future such as investment in education, a business, or real estate. You should receive a return on investment. Bad debt takes away from your future and depreciates in value such as high interest auto and credit card loans. 

5. Rule 5. Don't close credit card accounts once you pay off the balance. 

If you pay off a credit card balance, you should not close the account. I had no idea but this could negatively affect your credit but it does. When you close an account, the length of your credit history will be affected.  Also, be sure not to open new accounts right before a major purchase.

** Pro Tip. Did you know that you could divide your mortgage payment in half to pay twice per month? This will help you save on interest rates and shorten your term. Read more

** Bonus. You can access an interest rate calculator here.