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Understanding your credit score and how it is determined can significantly help you when taking steps towards improving that score. Your credit score, which is also known as your FICO score, is calculated to predict how much of a risk you are as a borrower. The FICO score is able to provide lenders with a general overview of what type of history you have with credit, what type of payer you are, and what are the odds
you are going to repay their money.

1. Know and Understand Your Credit Score. The credit score is made up by the following:

Payment History – 35%

Total Amounts Owed – 30%

Length of Credit History – 15%

New Credit – 10%

Type of Credit in Use – 10%

As seen in the list above, the bulk of the credit score is determined primarily by payment history, total amounts owed, and how long you have been managing your credit.

2. Pay Your Bills on Time. To improve your score, get into the habit of making your payments on time. Payments made 30 days or more after the due date are considered late payments and will tell the potential lender you have a history of paying late. Late payments reduce your score and ultimately create a negative impact. This history will generally stay on your report for at least seven years.  To avoid this type of negative impact, if you find you are unable to make your payments on time, contact the lender to
see what your options are. Most lenders offer the opportunities to make alternative arrangements, dates, or even partial payments. Just do what you can to be on time, and it you find that you are not able to, do what you can to work out an alternative solution with the lender. The key is to communicate with the lender!

3. Keep Debt Under Control. Debt-to-income ratio is important for controlling your debt load. Debt-to-income ratio is the percentage of monthly gross income that goes towards paying debts. These debts include, but are not limited to, recurring loan payments, credit cards, rent or mortgage payments, utility expenses, taxes, insurance premiums, or any ongoing financial obligation. Debt and expenses beyond 36% percent of your income is considered to be beyond acceptable limits and can affect your credit
negatively.

Reduce the balances on any existing credit that have high balances. For example, if you have an outstanding credit balance of $2,000 and the maximum limit for the term of that credit line is $2,500, maintaining high outstanding balances can also negatively impact your credit score.

4. Accentuate the Positive. Keeping accounts that are in good standing open can be to your advantage when restoring credit history. Your credit score can be impacted more negatively if you close an old account that is in good standing rather than keeping it open. Reason being, this account will show in the point system as good activity that is open or active with a zero or low balance.

Tip: The simple truth is that no one can legally remove accurate negative information from a credit report. Credit reporting agencies are obligated under the Fair Credit Reporting Act (FCRA) to correct or delete inaccurate, incomplete, or unverifiable information, usually within 30 days.  They are not required to remove accurate information unless it is more than seven years old (or bankruptcies that are over ten years old). You have the right to dispute any inaccurate or incomplete information on your credit report-- and the credit reporting agency must investigate the dispute without charge to you.  Everything a credit repair organization can do for you legally, you can do for yourself at little or no cost.

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