There are a lot of books, tables, eBooks, and other works available which are alleged to contain top secret information and tricks of the trade on how to improve your credit score. They often sell for hundreds of dollars, but they’re just not worth it. It’s true that Fair Isaac keeps the proprietary formula that calculates your credit score to themselves, but they do tell you what factors make up your credit score. Did you know that there are two factors which make up 2/3rds of your credit score? It’s true. If you can keep those two factors in-line, chances are you’ll be a-okay when it comes to getting a loan if you need to.
The first primary factor which makes up a whopping 35% of your credit score is your payment history. Do you pay your bills early or on time every single month? Surprisingly enough, most American’s don’t actually do this. Having a few late payments here and there can significantly lower your credit score. If you are sure to pay all of your debt payments early or on time, you are well on your way to having a dramatically better credit score.
Debt utilization, also referred to as capacity, is the second primary factor. Your debt utilization ratio makes up 30% of your credit score. Debt utilization is simply the percentage of credit that you have available that you are actually using. Let’s say you had a credit card with a balance of $2,500 and a limit of $10,000. Your debt utilization would be 25%. Fair Isaac believes that there’s a statistical correlation between those who have a high debt utilization percentage and those who don’t pay their bills on time. Thus you want to minimize your debt utilization percentage as much as possible to improve your credit score in that area. You should never let your debt utilization percentage go up above 50%, otherwise you’re asking for a credit score in the 500’s or 600’s.
If you can keep those two factors in line, you will be well on your way to having a great credit score. Before paying for any books that claim to have any special knowledge offering supposed tricks of the trade and secret methods to improving your credit score, try doing those two things. It’s not going to jump up instantly, and it does take time. It’s not flashy, but minimizing your debt usage and paying all of your payments on time will substantially increase your credit score over time.