A credit score may impact your ability to acquire a loan or a credit card without you even being aware of it. Suppose you are familiar with the different levels of car insurance based on your age, gender, driving experience, number of speeding tickets, and number and severity of accidents. In that case, you will quickly grasp the idea of a credit score. The same principles apply to securing a loan or a new credit card. The lenders (bank, credit union, credit card company, mortgage broker, etc.) take a look at your ability to pay them back when they are considering lending money to you. By looking at your credit score, lending institutions understand how great a risk it would be for them to loan money to you.

At Breeze Financial, we can help you secure a loan even if your credit score is somewhat low. However, if you are looking to improve your score, let’s first examine just how these credit scores (also known as credit ratings) are determined and thereby gain some insight on tips to change your credit score for the better.

A credit score is just a summary of your credit history and is represented by a number. The range for a credit score is from 300, which is not looked upon favorably, to 850, which is very favorable. Most lenders do not want to work with clients who score much below 630.

The specific credit history that is considered in determining your credit score encompasses:

Payment History
The time it takes you to pay off debts and whether your debt is paid in full or by several partial payments.

Amounts Owed
Using only 30% of the financial limit, you have been loaned scores well; conversely, exceeding the amount is deemed high risk.

Length of Credit History
The longer you have an account, the better it looks to the scorekeepers.

Credit Mix
Scorekeepers look at how responsible you are juggling more than one loan, like having two credit cards, a car loan, and a mortgage.

New Credit
How many new accounts are you trying to open at one time.

Your credit score changes all the time based on these five components and how you are handling your loan payments. So, if you wish to improve your credit rating, you will need to adjust your payment and loan habits. Let’s go over that list again with tips on improving your credit score.

Tips for Improving Your Credit Score

Payment History
Ensure you are paying the lender’s money back on time and for the total amount requested, even if they offer a reduced, minimum payment amount. This is paramount for increasing your credit rating. Paying off several smaller portions owed toward your balance throughout the month can help you track your spending better. Just make sure you pay the entire amount owed early or on time.

Amounts Owed
Avoid using all of your loans at once. For example, never spend over your credit card limit and, in fact, keep your monthly bills to under 30% of its limit. Of course, you still have to make sure you can pay that amount off in a responsible, timely fashion. If you use over 30% of the loan limit each month and still pay it off on time and in full, you should consider increasing your credit limit. Just make sure that you aren’t tempted to spend more with an increased limit.

Length of Credit History
Well, this takes time, of course. Over time, if you practice the first two tips conscientiously, your credit score will improve.

Credit Mix
This one comes attached with caution. Where lenders may like you to show you can responsibly handle more than one debt, they don’t care as much about this scenario as the first three points. Also, having too many loans is risky for you to juggle. The best advice is to keep your loans small and manageable (to make timely payments), and the fewer loans, the better at one time.

New Credit
If you are a first-time lender, it will be more difficult for you to secure a loan. You will want to start with something small, like a credit card with a small limit, such as $1000.00 per month. If you have had loans and are applying for a new loan, lenders will see how many loans you have.

The key to improving your credit score is to always pay your loan(s) off in full and on time. It takes financial discipline to do this consistently, but it will allow you to attain the loans you need in your future. This practice will build up your credit rating over time and firmly establish you as a responsible and dependable person regarding your finances.