The lower the interest rates on your loans, the more income you’ll have available for other uses, including saving for retirement. Your credit score is the key to getting loans approved and determining the interest rate you pay. Here are four simple ways to improve your rating on the credit scoring system that most banks and mortgage lenders use.
Your payment history makes up more than a third (35 percent) of your total credit score. So, if you’re never late with your loan and credit card payments, you may be well on your way toward a stronger credit score.
The lower the interest rates on your loans, the more income you will have available for other uses.
The amount you owe to all lenders makes up about a third (30 percent) of your score, and the less outstanding credit you have, especially on credit cards, the better your score.
Borrowing is easy, but the subsequent payments can become a prolonged drain on your income. Limit your use of credit cards to an amount you can comfortably pay off each month.
Take new loans only for major, long-term items like a house, education or a car.
The length of your credit history accounts for about 15 percent of your score. So, it pays to maintain your credit relationships. Canceling unused credit cards to reduce your overall credit may work against you. That’s because your score considers both the average age of all your accounts and the age of your oldest account.
The rest of your credit score (approximately 20 percent) rates your debt mix, the number of accounts you have, and whether you have recently applied for a loan or credit card. Consider limiting the number of new applications you make.
