Your credit score is broken down into 5 different components. Let’s take a look at each section to see what quick actions we can take to improve our credit quickly.
Payment history – 35%
Your payment history is one of the most important things on your credit report. If you miss a payment, there’s no doubt that your score will take a dive, and the annoying thing about this is that that one missed payment can stay on your report card for the next 7 years.
Fortunately, with the new FICO score, the longer the time has passed since your last late payment, the less and less this late payment will affect your score. This is one of those items that you can’t quickly change because it is based on history and will reflect past actions.
How much you owe – 30%
This is one of the most useful sections of your overall credit score, as it is represented by the amount of credit you have used, beyond the available credit limit. Everyone says you shouldn’t use more than 6% of your available credit to keep this part of your credit score at its best.
So if you have 4 credit cards with a total credit limit of $2,400, you may not use more than $144 of the total available credit. We know there’s no point in having that much credit and not using it, but if you start using all your available credit, your credit score will take a dent.
One thing you can do to quickly increase your score is to pay off all credit cards that currently have a balance and reduce that usage to less than 6%. This is often one of the fastest ways to increase your credit score, but it will take until the next billing cycle to reflect on your report, as this is usually when the credit cards report to the credit bureaus.
Length of credit history – 15%
Since it’s based on historical stats, there’s not much you can do here. However, keep in mind that the length of your credit history is 15% of your total credit. This means that if you get a credit card and decide to close it in the future, we recommend that you keep it open to continue building that credit history.
The longer you have a credit account or loan open, the better it will be for your credit report and FICO credit score. However, since this is only 15% of your credit score, just keep it in mind and spend more time on the other bigger pieces of the credit score pie.
Credit mix – 10%
When we talk about credit mix, we are talking about the different types of credit that appear in your report. The most common are credit cards, car loans, mortgages and student loans, store cards. To get the most out of your credit mix, we recommend that you have at least 3 different credit types, this should give you a good overall mix.
For example, if you only have credit cards on your report, opening a store credit card or getting a loan for a car will significantly increase your credit mix, boosting your credit score by a few points.
New credit – 10%
New credit interacts with the credit mix, for example if you diversify your credit profile by opening new accounts, the new credit reported will increase your credit, but it can also lower your scores. Applying for too much credit at once, say opening 4 different credit cards in the same month, can cause a hit on your credit score as it seems like you need credit due to the number of cards you open in a short span of time.
Since new credit is only 10% of your total credit, we shouldn’t focus too much on it, just note that you shouldn’t apply for too much credit at once so you don’t get a hit on your credit score.
How long does it usually take for changes to appear in my report?
Unfortunately, it usually takes a month for changes to be visible on your credit report, so when we say “fast” we mean changes that you can see a month from when you make the change. To summarize, things you need to do are:
- Keep credit usage low and pay off whatever credit card balance you have.
- Never miss a payment, even if you have to use one credit card to pay the minimum balance of the other.
- Keep your credit mix unique. Don’t just put credit cards on it.
- Do not open too many credit cards at once as this will cause a hit to your score if you open too many accounts in a short period of time.
- Never close unused credit cards, as these unused credit cards will give you a credit history that makes up 15% of your total score.
What about direct debit accounts?
Since collectible accounts are considered the lowest state of the barrel, nothing you do will increase your score. This is because it is already as bad as it gets when a collection is reported on your credit report. Even if you pay it off, it won’t increase your score, and if you remove it, it might drop a bit because you’ll lose that history.
However, if you stick to these basics, your credit score should soar. Remember, the fastest thing you can do is pay off the balance on your credit cards.
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