Understanding Credit Scores and Improvement

Study Notes

A credit score is a 3-digit number that represents an individual's creditworthiness
Scores range from 300 to 850, with higher scores indicating better credit
Credit scores are calculated based on information in credit reports, including payment history, credit utilization, credit age, and credit mix

Payment history (35%): On-time payments, late payments, accounts sent to collections, and bankruptcies
Credit utilization (30%): Amount of credit used compared to credit available
Credit age (15%): Length of credit history and age of oldest account
Credit mix (10%): Variety of credit types, including credit cards, loans, and mortgages
New credit (10%): New accounts, inquiries, and credit applications

Check credit reports: Obtain reports from all three major credit bureaus (Experian, TransUnion, Equifax) and dispute any errors
Make on-time payments: Pay bills on time, every time, to demonstrate responsible payment behavior
Reduce debt: Lower credit utilization by paying off debt and keeping credit card balances low
Avoid new credit: Limit new credit applications and avoid applying for multiple credit cards or loans in a short period
Monitor credit utilization: Keep credit utilization below 30% to avoid negatively impacting credit scores
Avoid negative marks: Avoid collections, foreclosures, and bankruptcies, which can significantly lower credit scores

Debt snowball: Pay off debt with the smallest balance first, while making minimum payments on other debts
Debt avalanche: Pay off debt with the highest interest rate first, while making minimum payments on other debts
Credit builder loans: Take out a loan and repay it on time to build credit history
Become an authorized user: Be added to someone else's credit account to benefit from their good credit habits

Credit scores are 3-digit numbers representing an individual's creditworthiness, ranging from 300 to 850
Higher credit scores indicate better credit
Credit scores are calculated based on payment history, credit utilization, credit age, and credit mix from credit reports

Payment history accounts for 35% of credit score, including on-time payments, late payments, collections, and bankruptcies
Credit utilization accounts for 30% of credit score, considering the amount of credit used compared to credit available
Credit age accounts for 15% of credit score, considering the length of credit history and age of oldest account
Credit mix accounts for 10% of credit score, considering the variety of credit types (credit cards, loans, mortgages)
New credit accounts for 10% of credit score, considering new accounts, inquiries, and credit applications

Obtain credit reports from all three major credit bureaus (Experian, TransUnion, Equifax) and dispute any errors
Make on-time payments to demonstrate responsible payment behavior
Reduce debt by paying off debt and keeping credit card balances low, lowering credit utilization
Limit new credit applications and avoid applying for multiple credit cards or loans in a short period
Keep credit utilization below 30% to avoid negatively impacting credit scores
Avoid collections, foreclosures, and bankruptcies, which can significantly lower credit scores

Debt snowball: pay off debt with the smallest balance first, while making minimum payments on other debts
Debt avalanche: pay off debt with the highest interest rate first, while making minimum payments on other debts
Credit builder loans: take out a loan and repay it on time to build credit history
Become an authorized user: be added to someone else's credit account to benefit from their good credit habits