One of the things that most people want in and contribute to their dream life is financial stability.
If you feel like financial concerns are keeping you from achieving the life that you want, you should look to boost your credit score. A good credit score allows you to receive better loans, buy the house that you want, rent a better living space, and buy a car that you actually like. Thankfully, Wells Fargo has broken down the components of your credit score and you only need to deal with the following 3 that account for 80% of your credit.
1. Payment history
It should be obvious that making payment on-time is important when trying to have a good credit score, but you would be surprised to know that this accounts for 35% of your credit. How many days overdue your payments are, how often you miss paying on-time, and the number of recent misses all affect your credit score. In California, debts stop affecting your credit after 4 years and paying off collections may not even boost your score. So do yourself a favor and try to stay on top of your payments because paying even 1 day late can have a negative impact.
2. How much you owe/use
The amount of money borrowed from lenders makes up 30% of your credit, so it’s very important that you avoid maxing out your credit cards and to practice good budgeting. If you can pay more than the minimum payment, you should absolutely do so and keep the balance you owe as low as possible. A double-digit balance is fantastic for raising your score, but a single-digit balance is even better.
3. How old your accounts are
This lesser known component accounts for 15% of your credit score, but it is easier to maintain than the previous 2. If you’re closing a credit card because you have paid it off, you don’t use it as much, or you want to open a new one, then you should rethink that decision. An older credit account that is active has a longer payment history, which leads to a better credit score. Creditors look at the average age of only active accounts, so any closed or inactive accounts will not count towards your credit history. If you have a 7-year-old credit card and a brand new one, your payment history averages 3.5 years. Closing the old one would bring your payment history down to a few months max, which also brings down your score.
Since 3 components make up 80% of your credit score, you can maintain a good credit or raise your score by focusing on on-time payments, reducing the amount of money you borrow, and keeping old accounts open for a long payment history. Nowadays, a good credit score is really important for financial stability and is viewed as a sign that your life is in order. Good credit can come in handy especially when you’re stuck in a bad place and need money.
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