Question: I don’t understand the credit scoring systems. I pay my bills on time, but I still have poor credit.
Philip Tirone: The credit scoring systems are based on several factors, such as your payment history (35 percent of your credit score), your outstanding balances (30 percent of your score), your account age (15 percent), the various types of credit you have (10 percent), and the number of inquiries from creditors into your score (another 10 percent).
If you pay your bills on time and in full, you might have a great payment history, but the credit scoring systems could be docking points if you have a bunch of high balances on credit cards. If you have limited types of credit, your score could be lowered. You get the point.
I suggest three quick strategies to which the credit scoring systems will respond favorably:
1. First things first: See where your credit is. Pull your credit report at least once a year so you can see where you stand and what negative information might be on your report. You can get a free annual credit report, but do not purchase your credit score unless you are purchasing a FICO score. Our article about the credit score scale will help you decide when and where you should buy your credit score. Once you know where you stand, you can devise a strategy to improve your score, using the following methods.
2. Review your free annual credit report and make sure you are not a victim of identity theft. The credit scoring systems might be lowering your credit score because someone used your information fraudulently. Does your account list any negative information you did not know about? Are there accounts you have never seen, or information that does not make sense? If so, immediately contact the credit bureaus and creditor to ask about the information. If it does not belong to you, let your creditor and the credit bureaus know that you want to dispute the negative information as you suspect you are a victim of identity theft.
3. Though not the only things that affect your credit score, the amount of debt you carry and your history of payments account for a large portion of your credit score. Consider not only your payment schedule but also the amount you pay. Are credit scoring systems lowering your score because you have a tremendous amount of debt? The formulae established to determine your credit score is based in part on how much debt you carry, credit bureaus will be happiest if your credit card balances never exceed 30 percent of their limit. Make a plan to cut back on your expenses or increase your income so that you can lower your balances to no more than 30 percent of your credit card limit.
By taking these three simple steps toward improving your credit, you will see a light at then end of the tunnel as your credit score begins to quickly move into a higher bracket. Once your score is above 720, you will enjoy the perks that come along with having a great credit score, which includes the ability to make future investments.
If you want to learn others strategies about how to improve your credit score, register for our free teleseminar where we provide more detailed information about the credit scoring systems … and more!
