The world has, in the past few years, become focused on credit scores. But the problem for many consumers is that, while they may know what a good or bad score is, they may not be aware of just what actually makes up that score and what affects it the most. And that can cause big problems.
For consumers with bad credit, there are a number of ways to improve their damaged score, according to a recent article in the magazine Entrepreneur. For example, it's important that consumers examine their credit report to find any inaccuracies which could be dragging their score down. The article recommends that consumers check at least once a year to keep errors off their report.
The article also says consumers should lower their balances so that banks know they are dealing with a consumer that won't just let debt accumulate. Another important factor in determining a consumer's viability is how old their accounts are. Older accounts show lenders that they are dealing with a trustworthy, reliable consumer.
It is important, the article said, that consumers have a variety of credit types on their account. If they can carry not only credit card debt, but also installment loans like car and boat loans, as well as larger loans like mortgages, it proves that, no matter the situation of a loan, a consumer can pay it off.
The article also recommends that the consumer not try to get any new credit lines, as repeated inquiries by potential lenders can further damage a credit score.
It's also important to know just what makes up a credit score. The biggest determining factor in any credit score is actually how the consumer does at paying their bills on time, every time, said an article in the Poughkeepsie Journal. This one factor actually comprises about 35 percent of a consumer's credit score.
Another 30 percent of their credit score is based on outstanding debt, the article said. Lenders expect consumers to carry a certain amount of debt on their credit cards, but it's important for them to not carry more than they can afford to pay off every month.
Another 15 percent of a credit score is made up of past credit history, since it makes sense that lenders are more likely to extend a loan to people with a proven history of paying it back.