You might not be familiar with your credit score if this is the first time you use credit. It is crucial to quickly learn how you can build good credit. To build good credit, there are many steps you can take. It's important to build a credit score. Most cases, this will require opening a credit card.
Credit mix
It is important to consider the credit mix in determining your credit score. The percentage of revolving credit versus installment credit is a major factor in your overall credit score. Also, credit utilization plays a significant role in your credit score. You will have lower credit utilization percentage if you have a combination of revolving as well as installment accounts.
Payment history
One of the most significant parts of your credit score is your payment history. Your payment history tells lenders how reliable and often you pay your bills. This is critical to your credit score since missed payments or late payments could lower your score. There are many ways to improve your payment record.
Credit utilization
The credit utilization ratio is the percentage credit you've used to reduce your total credit. This percentage is calculated by subtracting your current balance from your total credit limit across all accounts. You can usually find this information by logging into your credit card account. Bankrate.com has a credit utilization calculator you can use to calculate it. For example, if you have a credit card with a $5,000 limit and have spent $500 on it, your credit utilization is ten percent.
Length of credit history
Credit history has a significant impact on your credit score. This factor accounts for 15% of your overall score. However, other factors will also be considered. The higher your credit score, the better. Lenders prefer customers with a better credit score to be approved for loans.
Interest rate
You may be asking yourself, "What credit score should I start with?" FICO and VantageScore are able to give you a score of 300. However this is rarely the starting point. Your initial credit score is likely to be somewhere around 500. Your credit score will increase quickly as you are a responsible credit-user.