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 amount you owe to all lenders makes up about a third (30 percent) of your score. The less outstanding credit you have, especially on credit cards, the better your score. But a history of good debt management scores higher than having no debt at all.
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. Limiting the number of applications you fill out should help your score.
