How can I get a high credit score?

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Answered by: Linda, An Expert in the Managing Money Category
Everyone knows that a high credit score is important in obtaining loans at reasonable interest rates, but not everyone knows how that score is determined, or even what constitutes a good score. The companies that calculate the scores depend on very complex formulae to evaluate the credit worthiness of the borrower. Fortunately, the elements that make up the score are much easier to understand.

Five categories contribute to the score. The first and most influential category weighing in at a whopping 35% of the score is payment history. Each payment is reported to the credit bureaus and archived in the credit report. Negative items such as collections, tax liens, bankruptcies, and judgments are also included in this category, making it extremely important to pay bills on time.

The next most significant category is debt utilization, contributing another 30% to the score. This means that balances close to the lending limit also negatively impact the score. For an optimal score, the actual amount charged should be 10% or less.

Account age makes up for another 15% of the total score. Keeping an account open for seven years or more helps earn the most points in this category. It makes sense to use old cards before new ones to keep the data fresh on the credit report.

Account mix contributes about 10% to the score, meaning a mixture of credit cards, mortgage, auto loans and student loans. Because this category contributes such a small amount to the overall score, it is not really important to use all loan types.

The remaining 10% is created by the recent record of credit and loan applications. Only hard inquiries, meaning those to apply for additional credit damage the score. Soft inquiries, such as the individual checking on his score, do not impact the score at all. In order to maintain credit health, it is important to monitor credit reports for unhealthy activity. The official site to help consumers monitor their credit files on each of the credit reporting companies is It is important to realize that the purpose of the credit reporting process is to maintain a record of the credit worthiness of the consumer. In this way lenders can make fair determinations as to whether to extend credit when requested. By maintaining a healthy credit background, the consumer can achieve a high credit score and obtain credit when it is needed.

Credit scores can be as high as 850, but very few people have such an excellent score. Scores ranging from 660 to 749 are generally considered good. Some lenders will look at other factors before making a final determination as to credit risk, such as employment stability and length of time at various addresses. There are three major credit bureaus that calculate credit scores: TransUnion, Equifax and Experian. Each calculates the score based on the information reported to it, and there may be some variance to that. Creditors generally check all three bureaus before making a final decision.

The important thing to remember is that credit scores are far more fluid than most people realize. A small fluctuation in score is normal and nothing to worry about. Paying debts on time and keeping the debt level low are the best ways to ensure a high credit score.

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