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Your credit rating is one of the most important indicators of your financial health, especially in the eyes of lenders who have the option of giving you credit for some of the biggest purchases of your life, like a mortgage for a house or a mortgage. a loan for a car.
And while you can have several different credit scores because there are many different scoring models out there, the FICO score is the most important because it is used in 90% of loan decisions. Therefore, it is important to make sure that you take action to keep your FICO score within a healthy range, which is generally considered to be 670 and above.
The good news is that the average FICO score in the United States has actually increased eight points to 716 in the past year, according to a recent report from FICO. This seems to be a promising indicator that more and more Americans are improving their chances of qualifying for the best loan rates, the best credit cards, and more favorable terms on their mortgages.
But, if you think you’ll need to take extra steps to improve your FICO score, read on for Select’s breakdown of the three important steps people took to increase their score.
They made more payments on time
Missed payments have actually gone down considerably. According to the FICO report, in April 2021, only 15% of Americans had a missing payment that was more than 30 days past its due date. The year before, however, 19.6% of Americans had missed a payment.
Payment history makes up 35% of your FICO score – and it’s actually the most important factor when calculating a score. Lenders want to make sure that you have a consistent payment history on time because that is an indicator of how likely you are to pay them off when they give you new lines of credit. This is why missing a payment can actually lower your credit score.
Of course, there are times when missed payments happen unintentionally, especially when life rolls out or you’re so busy that you forget to mail a check or pay the bill online. Setting up automatic payment can give you peace of mind when it comes to paying your bills (read what happens when you miss a credit card payment here).
You can schedule a fixed amount of money (or statement balance in the case of a credit card) to pay for your debts on the same day each month so you never have to lift a finger to pay them. manually. And some lenders may actually offer you a slightly lower interest rate on your loan if you use automatic payment, as it decreases the likelihood that you will miss a payment due date.
Some apps, like Mint, also send you reminders when you have an upcoming payment that’s due. And you can even mark the invoice as ‘paid’ in the app so you never have to wonder if you actually took care of it during the month.
Information about Mint has been independently collected by Select and has not been reviewed or provided by Mint prior to posting.
Shows income, expenses, savings goals, credit score, investments, net worth
Categorize your expenses
Yes, but users can change
Yes, bank and credit cards
Available in the App Store (for iOS) and on Google Play (for Android)
Verisign scanning, multi-factor authentication and Touch ID mobile access
They have reduced the amount of their debts
Although millions of people have suffered partial or total loss of income as a result of the pandemic, stimulus bills and improved unemployment benefits under the CARES Act have helped people prioritize reimbursement. debt and savings. And in some cases, people who experienced minimal or no income disruption during the pandemic were able to save more and make higher payments on credit cards and loans to pay off debt faster. Plus, just having fewer discretionary spending options like concerts, restaurants, nightlife and more meant consumers could spend their extra money paying off debt.
While debt isn’t inherently “bad,” it’s still important to know how much debt you have compared to the amount of credit you have. This credit utilization rate represents 30% of your FICO score. Having $ 5,000 in credit card debt doesn’t sound like a lot of debt if your credit limit is $ 20,000 (in this case, your usage is only 25%). But if you have $ 5,000 in credit card debt and a $ 10,000 credit limit, your usage suddenly drops to 50% because you have less available credit.
Interest charges can make paying off credit card debt more difficult, especially considering the fact that the average credit card interest rate ranges from 15.56% to 22.87%. In some cases, you may be able to allocate more of your payment to the principal amount by using a credit card with balance transfer. Those like the Wings Visa Platinum card have no balance transfer fees and carry an interest rate as low as 8.15%.
The Citi® Double Cash Card, on the other hand, allows you to make a balance transfer without paying interest on the transferred amount for the first 18 months (thereafter, 13.99% – 23.99% variable). , which can potentially save you money. Balance transfers must be made within 4 months of opening the account. While this offer does not apply to new purchases made with the card, the interest-free period can help you pay off that existing balance faster.
Citi® Double Cash Card
2% Cash Back: 1% on all qualifying purchases and an additional 1% after paying your credit card bill
0% for the first 18 months on balance transfers; N / A for purchases
13.99% – 23.99% Variable on purchases and balance transfers
Balance transfer fees
Either $ 5 or 3% of the amount of each transfer, whichever is greater
Foreign transaction fees
They decreased the frequency with which they actively sought new loans
Finally, fewer Americans are applying for new lines of credit. In fact, the average number of credit applications on a person’s credit report has declined by about 12.1% year over year, according to FICO.
When you apply for a new line of credit, your score temporarily drops because a thorough investigation is used by the lender to assess your creditworthiness. At the same time, however, your credit mix represents 10% of your FICO score, so the more diverse the mix, the better. It shows lenders that you can handle different types of credit.
Checking your score before Applying for a new line of credit can help you determine in advance your likelihood of getting better terms (such as a lower interest rate). This way you can decide whether or not you want to delay a new loan or a new credit card and take a little more time to improve your score.
Services like Experian allow you to monitor your credit score for free. In fact, Experian reports your score based on the FICO 8 scoring model, so you’ll see the score that lenders are most likely to see when making a decision. You can even use the platform’s free credit monitoring service to spot instances of identity fraud that can potentially harm your credit score if someone applies for loans and credits on your behalf.
Experian Dark Web Scan + Credit Monitoring
On the secure Experian site
Supervised credit bureaus
Credit rating model used
Dark web analysis
So while you should always think carefully when applying for a credit card, mortgage, personal loan, or car loan, keep in mind that using your credit thoughtfully and responsibly can help keep you going. a good score.
Temporary drops in the FICO score can always be corrected by making payments on time and keeping your usage rate low. But if you want to learn more about how to improve your credit score, check out our article on other factors that influence your score.
At the end of the line
Your credit score is not a permanent report card note that stays with you forever. You can improve your score over time with healthy financial habits, like making regular, on-time payments and making sure you have less debt.
It is especially important to work on improving your FICO score as it is the score that is used in 90% of loan decisions. But on average, it appears that American consumers are making financial improvements that have a healthy impact on their FICO scores.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.