How To Build Up Your Credit Score: Major Secrets Revealed and Explained

That’s not to say that a good credit score equals happiness, but it definitely makes your life easier. When your score is high, you appear as a reliable and trustworthy person. But when your score leaves much to be desired, it gives you harder times applying for a credit card, refinancing your student loan, and even applying for a rental property. Like it or not, but credit reports make up a significant part of a comprehensive tenant screening.

Your credit score is a three-digits number that reflects your financial background and, consequently, serves as a proof of your financial reputation. A classic credit score, aka FICO score, ranges from 300 to 850 and matters more than you think.

Given the important role credit score plays in virtually every aspect of your life, we’ve decided to help you sift this question to the bottom. We’ve made a thorough research, talked to a professional credit advisor, and created a champion guide to understanding the credit score. Get ready to puzzle things out.

How your credit score is calculated?

Your credit score depends on five factors – the length of credit history, credit mix, payment history, amounts owed, and new credit. But not all factors are equally important. The most critical ones are payment history and amount owed – they account to 35 and 30 percent accordingly. Your credit mix and new credit determine 10 percent of your score each, while the length of your credit history makes up the remaining 15.

However, as experts confirm, the percentage is never perfect and rarely adds up to 100. This can be explained by the fact that your score is constantly adjusting and credit bureaus are not forthcoming with details.

Can you clear your credit score?

If you have a first hand experience of living with a low credit score, chances are good that this question has crossed your mind at least once. Here’s what a professional credit coach Jeanne Kelly says in this regard:

“You can’t clear accurate information reporting on your credit reports, but you can make sure you have no errors on your credit report. 35% of your FICO score is based on the payment history. You can start today to make sure all accounts stay current.”

What credit score is considered bad?

As you’ve learned at school, things are never purely good or bad. And this rule perfectly fits the context. You can find dozens of credit score breakdowns, and each one will tell you different things. However, as reliable sources suggest, you should be geared towards 700 or higher to be perceived as a creditworthy person. Consequently, a score below 700 is not what you should aim for. Nonetheless, as long as your score is at least 630, you have decent chances to qualify for a rental property you like.

Here’s what our guest expert Jeanne Kelly has to say on this matter:

“90% of lenders use FICO scores for lending and FICO has many versions depending on what you are applying for. For home loans, the range is 300-850. I think instead of answering what is considered a bad score, you should just aim for the best score you can to achieve the best interest rates and that would be to get into the 700’s.”

How can you build your credit score?

Let me use an analogy to answer this question. A high credit score is not a race car that allows you to hit the gas and feel the result right away. It’s more like your driving record. Instead of showing your current spot, it traces your past behavior. That’s why building a credit score takes time and effort. You can build one over time with a student loan, mortgage, personal loan, just to name a few.

Use credit cards to build credit score

According to the expert opinion, using credit cards on a regular basis can help you tremendously:

“I always say use credit cards as a tool to build your credit history. If you look at credit cards as a way to build up your credit by paying on time, keeping balances low, in time you need a larger loan such as a home mortgage you have good history.”

Can your credit score be lost?

Your credit score is not material, which means you cannot lose it in the conventional sense. What you can lose, however, is your credit card. And it can affect your credit score under particular circumstances. Once your card is lost or stolen, you get options to choose from. You can replace it, upgrade it, or close entirely. And you should know about a catch with the last option. When you decide to cancel your credit card, your available credit amount decreases, while the amounts owed gets increased. As we’ve explained earlier, this factor is one of those determining your credit score.

In what ways can your credit be lost?

If somehow your goal is to ruin your credit score, we’ll be amazed how many options you have. First and foremost, you can miss your payments. While a one-week delay won’t do much harm, a more significant one (read: more than 30 days) will sure damage your credit score. Secondly, you can use up all the available credit. Even if your credit limit is $20,000, you shouldn’t use $19,999 if you care about your credit score. Thirdly, you can decide to stop using your credit card with a debt. Needless to say, it won’t help your credit score get higher because your credit limit will be reduced. Yet another way to damage your score is to ignore taxes. Despite commonly known consequences of not paying your taxes (tax lien is considered a major delinquency), it also has a lot to do with one’s credit score.

Who can see your credit reports?

In fact, this question is strictly regulated by the federal law. As stated in the Fair Credit Reporting Act, there’s a list of so-called ‘permissible purposes’ that allow others obtain your credit report. Given this, the list of people who can see your credit report includes but is not limited to the following:

  • Prospective landlord or property owner (only after your permission)
  • Credit grantors (in case you’re applying for credit)
  • Collection agencies (they need it to collect a debt)
  • Insurance companies
  • Employers (in case you gave them your permission)

Apart from the above-mentioned categories, your credit report gets accessible to everyone you decide to authorize. This can be your colleague, close friend, or a family member. All it takes is a written permission from you.

Is it possible to build a credit history without a credit card?

Yes, sure. As Jeanne Kelly explains, one can build credit with a personal loan, student loan, auto loan, mortgage. However, credit cards are usually a way to start.

Can you build your credit history with rent payment?

In case your current credit history is not long and good enough, it might help you tremendously to include information about your timely rental payments. However, this type of payments typically doesn’t show up in your credit history. The good news is that you can still make these payments count. All it takes is to use a rent-reporting service like Rental Karma or Rent Track and get rent payments reflected in your credit history.

So what’s the bottom line?

It takes time and effort to build a good credit score, but it’s definitely worth it. When your score is high, you get a chance to get things that would otherwise be out or reach. In some way, good credit score helps you achieve that priceless feeling that the world is your oyster. Let alone that it gives you more chances to rent a home of your dream. Feel free to benefit from the tricks mentioned in this article. And may a high credit score be with you.

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