Factors that Raise or Lower Your Credit Score
There are not a specific set of steps you can take to improve your credit score because there are so many different variables that make up one’s credit score. To illustrate this, consider the following:
- Opening up several new credit card accounts will raise one person’s credit score while lowering another person’s score. Why? Because one person might have an insufficient credit history and adding additional accounts will increase his score. Another person might have a very long credit history, say 22 years, and opening up new accounts will lower her average account age, which will in turn lower her credit score.
- Closing credit card accounts can either raise or lower your credit score. There is no way you can predict if closing an account will raise or lower your score because you might have too many credit cards compared with the number of other types of loans you have open or you might have too few.
A good rule of thumb is to use common sense when trying to improve your credit score. When deciding to take a specific action, try to stay within the mainstream. For example, the average American has seven open credit card accounts. If you have 22 credit card accounts and a low credit score, you might boost your score by officially closing some of those accounts. However, you may harm your score if closing old credit card accounts would (1) lower the average account age of all your open accounts; and (2) affect your debt-to-credit limit ratio if you carry big balances on your credit cards.
Generally, the most important two actions you can take to improve your credit score are to (1) pay your bills on time each month before the due date in order to keep late payment notations off of your credit report; and (2) pay down debt and do not accumulate anymore debt.
Delinquencies and collection accounts. Late payments and defaults harm your credit score more than any other factor. Just one 30-day late payment on your credit report lowers your credit score by as much as 35 points. Sixty and ninety day late payments do even more damage. If you start paying your debts on time today, you can significantly increase your credit score in six months. This means sending in your payment at least a week before the due date.
Judgments, liens, bankruptcies. Nothing lowers a credit score more than a bankruptcy notation on a credit report. Filing for bankruptcy can knock as much as 200 points off your credit score if your credit score is high and about 100 points if it is already low. You may not be able to get financing until you settle the judgment or lien. If you do get financing, it will be at a very high interest rate that can add $50 to the average monthly car payment and literally hundreds more to the average monthly mortgage payment, particularly if you live in an area where housing prices are outrageously high.
We at Jewelry Outlet always want to remind our customers why it is important for them to obtain and responsibly use credit. One helpful way to improve one’s credit is by adding a trade line and then only using a small portion of the trade line. This is an example of utilization, which is 30% of the credit score calculation. Thus with a top score of 850, the utilization category is 255 points of the total credit score (850 x .30).
If someone had one department store trade line of $500, but had maxed out the trade line by charging $500 of goods and services, then this person would lose almost all of the 255 points (out of 850), having a very high utilization of 100%. Thus assuming all other things on the person’s credit report were good, the highest credit score this person could achieve might only be 595 (850 – 255), as this person might lose all points for having a high utilization.
But if this person obtained another trade line (maybe a jewelry store account) for $5,000, now the person’s utilization would be only 9% ($500/$5,500). Thus this person’s credit score would increase, maybe by as many as 200+ points, possibly bringing the score up to over 800.
The person’s interest rate on an auto loan with a 595 score might be as high as 20%, whereas the interest rate with an 800 credit score might only be 2% to 5%. If someone purchased a $20,000 car, the lower interest rate would save $250 per month, for having good credit and low utilization.
This is the power of low utilization. And this why it is important to obtain a jewelry store trade line with a high limit.
Jewelry Outlet is the number one online jewelry retailer to help you enhance, establish and/or rebuild your credit. We offer easy credit terms for people with bad credit, new credit and no credit. Click here to Apply for Credit
Posted by Christian C Culpepper