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What’s in your credit score?

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There is a lot of talk about the important of credit score, including on this site. It is one of the most important financial numbers in your life, especially if you ever plan to buy a home. But what goes into determining your credit score? There are 5 different parts with different importance.

35% – Payment History
– The most important thing is making sure that you are paying all of your accounts and balances on time. This is why making sure you have a system in place to make all your payments is vital for improving your credit score.

30% – Amounts Owed
– This is where credit utilization comes in as so important, and why it could be helpful to increase your credit limit. If you owe a lot of money compared to your limit, that will hurt your score.

15% – Length of credit history
– This is why, in some cases, it might make sense not to cancel your oldest accounts, especially if you have a short credit history. If you have a longer history, it can help your score.

10% – New credit
– If you open a new account, that should be fine. However, if you have a huge rash of new accounts that you are opening, that could have a negative effect on your credit score.

10% – Types of credit used
– It can be helpful to have a mix of credit accounts, such as credit cards, car loans, mortgage loans, etc. However, I wouldn’t open a different type of account just for the sake of having a new account, especially if everything else is solid in your credit profile.

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