Getting and maintaining a good credit score is something that is essential for any American who wants to participate in the financial system. Credit scores are used for everything from determining if a person is eligible to take out a mortgage to determining who the right candidate for an open job position is. Unfortunately, few people understand exactly what information is used to determine their credit score. The key to improving your credit rating is to understand how your credit score is determined.
The most common advice given to people who want or need to improve their credit score is to make sure that their bills are paid on time. While paying bills on time can help towards improving credit rating, it can usually only help improve a score by about twenty points. Fortunately, there are many other ways to increase a score.
Believe it or not, one of the easiest ways to improve a credit score is to open new credit cards. The reason for this is that the ratio of credit extended to amount owed can account for about 30% of a credit score. The more credit that a person has extended to them, the higher their credit score; provided that they’re actually using very little of this credit. In order to get more credit extended without actually having to borrow money, many people have turned to credit cards.
Credit cards are typically issued with a credit limit. Customers are essentially allowed to charge up to this limit. If a customer reaches this limit or maxes out his or her credit card, then their credit extended to credit used ratio is equal to one. By taking out credit cards then not charging up a balance on them, however, a person could improve their credit extended to credit used ratio, and thereby improve their credit rating. In addition to taking out new cards, a consumer should also ask their current credit card company for their current credit limits on any credit cards they currently hold to be increased. In many cases, doubling a person’s total credit limit can increase their credit score by about thirty to fifty points.
In addition to increasing the ratio of credit extended to credit used, starting a new credit card account can also help a consumer establish his or her credit history. This is especially helpful for younger consumers whose credit scores are most likely low because of a short credit history. Length of credit history, that is, the amount of time that a consumer has used credit, account for about ten to twenty percent of a credit score. While many young consumers will not be ready to take out a mortgage for several years, having and occasionally using a small credit card now will aid them in establishing a credit history that can improve their credit score in the future.
A consumer with an extremely low credit score, however, will probably have problems getting a new credit card. In this case, the consumer will need to focus on other ways to improve his or her score before trying to improve his or her credit extended to credit used ratio. A consumer in this situation should start by getting a recent copy of their credit report, then read through this report and look for any errors. It has been estimated by a leading consumer group that nearly eighty percent of all credit reports contain mistakes. Correcting a mistake or having incorrect information removed from a credit report can improve a person’s credit score significantly.
Improving a credit score can be tricky, but it is much easier to do if a consumer is willing to open a new credit card account. A person can improve several different aspects of his or her credit score if he or she starts a new credit card, making this one of the quickest ways to improve a credit score available in today’s market.
