Sometimes the myriad of information available at the tips of our fingers can make knowing where to start seem impossible. And when it comes to your credit, there are a gazillion resources you can use to learn everything from effective credit building to personal credit repair to how to get that perfect score everyone dreams of. But a lot of us just need a simple yet comprehensive place to start on our journey to perfect credit. So we consolidated this information age’s credit encyclopedia into six simple factors that go into your credit score and some even simpler tips to make these work in your favor.

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1. On-Time Payments

Your track record for paying bills on time has the most impact on your credit score. This means that it’s also the easiest way to improve your credit score. Even paying 1 or 2 bills on time (or not) can increase (or decrease) your score. So if you’ve slacked on paying bills on time in the past – now is a great time to start getting on top of them. Setting up automatic payments are an easy way to meet this requirement every month.

2. Credit Usage

How much of your credit card limits you’re using has a big impact on your score. This means that the closer and closer you get to the limits on each account, the more it negatively impacts your score – up to 50 points or more! This makes you seem more “risky” for new potential lenders and creditors. An easy way to check this box is to keep your balances as low as possible, increasing the amount of credit you have available to use. So if you’re super close to those limits, take a month or so break from using them for new purchases until you can lower your revolving balance. As a rule of thumb, it’s best to keep your balance below 25-30% of your available credit.

Another easy (and financially savvy) way to increase your usable credit is to move a portion from your revolving balance from one card nearing it’s limit to a new account – namely, a balance transfer. This hits 2 birds with one stone, as your available credit increases with the addition of the new account, but you’re also lowering your revolving balance as compared to original cards’ limit.

3. Average Age of Credit

This is the average age of all your open credit cards and loans. There is not a whole lot you can do with this one except continue to use credit wisely in your open accounts, building a strong credit history.

4. Total Accounts

This is the total number of credit accounts you have. To put it simply, the more accounts you have, the more potential creditors and lenders trust you. The easiest way to make this factor work to your advantage is to keep all of your accounts open – don’t close them even if they’re not actively in use. If you’re in good shape with managing money on your credit cards, opening a new credit card account may potentially increase your score as it adds to your total credit limit, improves your credit usage score and increases your total number of accounts.

5. Credit Inquiries

When it comes to credit inquiries, there are two different types – a “hard check” and a “soft check.” Here are the main differences:

A Hard Check …

• Is typically pulled when you apply for a new credit card or loan account
• Negatively impacts your credit score (roughly between 1 to 5 points)
• Stays on your credit report for other creditors to see for up to 2 years
• Shows the creditors your entire credit history

A Soft Check …

• Is typically pulled by you for personal use or others to send you pre-approval offers
• Does not impact your credit score
• Is never seen by other creditors/lenders
• Doesn’t provide your entire credit history

Based on this information, you can see it’s wise to pull soft checks as often as you can to monitor your credit but try to keep hard checks to a minimum. The “credit elite,” aka those with a FICO score of 850 or higher recommend keeping hard checks to a maximum of twice per year. But if an additional hard check could up score because of one or more of the other factors, that would be a trade-off you’d have to evaluate.

6. Derogatory Marks

If one of your accounts goes into collections or bankruptcy, this obviously is hugely detrimental to your credit report. So do everything you can to keep your accounts in good standing, even if that means paying the minimum every month on high-interest cards and loans. Typically, creditors and lenders will send your accounts to collections somewhere around 90 days after the last missed payment so if you miss one or two, make sure to get back on the payment train before nearing that point of no return.

If you’re having trouble making even the minimum payments, don’t just let the days go by and calls go ignored. Reach out to your creditor/lender and explain your situation. They’ll want to work with you if they see you’re doing your due diligence in paying down your balance (even if you can’t adhere to the original agreed upon terms). Even if you end up paying more in the long run (e.g. exchanging a lower minimum payment for a higher interest rate), if you can preserve your credit score and history, it’s worth it.

If you’re having trouble making payments on multiple accounts, a loan to consolidate your debt into one payment for a lower interest rate may also be a great option.

Here are some great options to explore personal loans for this purpose.

Upstart – for those with Fair/Average Credit but have a great job history & educational background

Founded by ex-googlers, Upstart is an online lending platform that uses more information about you than just your credit score to determine future potential and provide lower interest rates. Using job history and education, Upstart is able to provide their borrowers with 22% lower interest rates than standard credit card rates. Not only that, but you can check your rate in 5 minutes (with no impact to your credit score), accept your terms and get your money next day! There’s no down payment required and no pre-payment penalties if you decide to pay off your loan early. Upstart is a great option for those with not-the-best credit (at least 620), but have all the other factors going for them. Note: borrowers must be making at least $12,000/year.  

Payoff – for those with good to excellent credit

Payoff is a great choice for borrowers with good to excellent credit who are looking to consolidate date with a personal loan (borrowers with other loan purposes in mind need to shop elsewhere). Their lenders look for credit scores of 660 or higher who’ve demonstrated a good credit history and have credit utilization of 50% or less. What makes Payoff unique is the fact that it’s only available for the debt consolidation borrowers – this means that the “bonuses” they offer may help you immensely in your payoff journey. The Payoff platform offers tools such as personality assessments to help you uniquely manage your finances and access to their Member Experience Advocates who will help keep you accountable for your monthly payments and spending/saving goals. Payoff is similar to Upstart in that checking your rate doesn’t hurt your credit score – so it’s always worth the quick 3-minute application to see where you stand. And their lenders claim that borrowers who paid off $5,000 in credit card balances see an average 40-point increase in their credit scores within 2 months of loan disbursement. Sounds like a great option to me.

Lending Tree & Credible – great comparison tools

If you’re ready to evaluate terms, numbers and plans – loan marketplaces might be good options for you. They provide invaluable comparison tools to make sure you’re getting the best options out there. Two of the best marketplaces out there are Lending Tree & Credible.

Lending Tree is one of the most widely used and trusted marketplaces out there. It’s been around since 1996 and works with credit scores of all shapes and sizes. Regardless of your financial situation, Lending Tree will just about always have a lending option that will work with you. Their repayment terms go far beyond the other lending marketplaces like Credible, who only offer up to 7 years to repay your loan. Lending Tree offers repayment terms up to 15 years so you’re bound to find a plan that works with your financial situation.

On the other hand, if you have great credit (680 or higher is recommended) and a glowing history – the newbie on the marketplace scene, Credible is a great option for you. It works with some of the top lenders and offers very competitive APR’s. Credible also has fantastic customer service so getting a knowledgeable rep on the phone to discuss your questions and concerns is a fantastic tool available to you.

All in all, both Lending Tree & Credible are great options for comparison shopping and a wise place to start in knowing what to expect with loan offers.

Use Your Free Tools!

You had me at the word FREE … yes, there are FREE TOOLS you can use to evaluate and improve your credit. CreditRepair.com offers a free 10-minute phone call to evaluate your credit for those who sign up online. You can ask the big questions, discuss the complicated stuff and lay the groundwork for building your own credit repair plan. During this phone call they offer you:

• FREE customized credit analysis
• FREE access to your credit score
• FREE credit report audit on all your accounts
• FREE score evaluation and recommended solution

Then, if you choose to utilize their paid services, they walk you through the entire process so you come out smelling like roses on the other end. How does it work? Well, when you sign up they pull your credit reports and organize it in a way that makes sense to us laypeople and identifies actionable steps to improve your credit score and report. They interact directly with the credit companies and bureaus to make sure your score and report is the most accurate and beneficial depiction of your financial situation and obligations. Throughout this whole process you have access to your personalized dashboard, score tracker and analysis and everything you need to monitor your progress in your credit repair journey. Previous members have seen an average increase of 40 points in 4 months.

References

http://www.mint.com/money-management-2/6-ways-to-improve-a-bad-credit-score

http://blog.mint.com/goals/increase-your-credit-score/

http://fitsmallbusiness.com/hard-soft-credit-check/