So many people just do not get this and also you understand what, I did not either at first. I love a number of other people took credit as a given. I applied for a card, paid my bill, sometimes just the minimum. I'd get another offer in the mail and apply for might begin using that card. I'd swap and transfer balances on new offers I acquired in the mail. I did not realize what each one of these things were doing to my credit report. I love to have things explained like Denzel Washington says in the movie Philadelphia, "explain it in my experience like I am a 6 year old."



Lets break up the five primary factors in determining Credit rating.



1) Payment History -- makes up about 35% of the credit rating. Don't pay late!! 1 day late on credit cards, loans, rent or mortgage and you're likely to be charged late fees. Paying Thirty days late or even more will cause your credit score to become marked as delinquent and your credit rating will drop.



2) Balance due is the reason 30% of your Credit rating. This is actually important. The greater you owe on your credit cards and loans, the low your score. This is also known as "Credit Utilization Ratio," as well as "Debt Utilization Ratio." Lets have a simple example: if 2 people have credit cards having a $1,000 limit, have always paid their charge card bill on time. One individual has used $500 of the borrowing limit; another has utilized $100 of their $1,000 credit limit. That has the better credit utilization ratio?



The one who owes less cash has the better ratio. The debt ratio is the current BALANCE on your charge card DIVIDED by the credit LIMIT.



Anything above 30% starts to possess a negative effect on your credit score. As your debt ratio increases, your credit rating decreases. A debt utilization that's less than 10% is ideal, anything above 30% is too much. When you are maxed in your credit cards your credit score will probably be in the toilet.



Which means you can't almost max your card and say to yourself you'll spend the money for minimum when the bill comes, that hurts your score and you're paying crazy interest on those funds. At that rate you'll never pay off that charge card let alone get a good credit score.



If you were my 6 years old niece I'd say; Take out your credit card statement and see what the borrowing limit is. Limit shows up somewhere on your statement along with the name and address. If it's not there and you don't know, call the customer service number on the statement.



Next; Look for the total amount in your charge card and divide the total amount on your credit card through the total borrowing limit. So you punch within the balance first into your calculator, hit the divide symbol ( ÷ ), punch in the Credit limit, hit the equal ( = ) button after which multiply ( x ) by 100 to obtain your percentage ( % ) i.e. credit utilization ratio. 500 ÷ 1000 = 0.5 x 100 = 50%. I think my 6 years old niece would get that. I'm not going to test that theory but I think you receive my drift now.



3) Period of time accounts have been open is the reason 15% of the score. The longer the greater



4) New Credit is the reason 10% of your score. So when you get a new loan or mortgage for example expect your score to drop a bit. It doesn't mean go ahead and take credit card offer from every department store and service station that provides you one. Which will hurt your credit rating.

credit score

5) Types of credit being used makes up about 10% of your score. It's easier to have different types of credit being used, but it's also the least important of the five factors.

highest credit score possible
 

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