Credit Utilization Ratio In Credit Report

Millennials (people aged 18-34)  don’t fully understand what impacts a credit score than older generations but according to a recent study it does not stop them from trying to improve their credit. They check their credit scores most and are trying actively to build and improve their scores according to Discover’s 2018 Credit Survey of US consumers.

If your credit score is lower than what you would like it to be then you are not alone as credit scores are influenced by many factors like   a long credit history (35%,), level of debt utilization(30%) the age of credit(15%)  mix credit(10%) and credit inquiries(10%). It is hard for many millennials to meet these criteria. But the good news is that you can boost your credit score this year by taking some concrete steps. Here are five steps that you can try.

1. Check Your Credit Report for Mistakes

You need to check your credit reports from time to time to see that they do not have any damaging errors by getting a copy each from the three major credit bureaus. In a study by the Federal Trade Commission in 2013 it was found that one in four consumers had a mistake on their credit reports that could have an impact on their scores. One in a five had an error that a credit reporting agency corrected after a dispute.

In order to ensure that you do not have any damaging errors on your credit reports you should get a free copy from the three major credit bureaus; Equifax, Experian, and Trans Union at  AnnualCreditReport.com. If you come across any errors you should submit a dispute online with the bureau that is reporting the error. You should explain why you believe the information is an error and provide details about what you are specifically disputing. (Including account numbers)

If there are big mistakes clearing them up could lead to a great improvement in your credit score.

2.Lower your Credit Utilization Ratio

The amount you owe measured by your credit utilization ratio will account for 30% of your credit score.  It can be calculated by dividing the total amount of debt owed by a total amount of available credit. For example, if you have a credit card with a limit of $1,000 and your credit card balance is $200, then your credit utilization ratio is 20% for that credit card. According to Experian a lower credit utilization (using a small amount of credit loaned to you) is preferred.  So if you pay off your debts in time you could boost your credit score.  You should decrease your credit card debt as the amount you owe will make up 30% of your score and using too much of your credit can be a sign of repayment risk.

3.Do not Skip or Miss a Payment on a Credit Card.

Missing a payment or skipping even one payment on your credit card can lower your credit score and cause it to drop by 100 to 300 points according to Bruce McClary, spokesman for National Foundation for Credit Counseling, a Washington, D.C.-based non-profit organization. This misstep can take you about two years to restore your credit score. So the first thumb rule is to pay your bills on time as this factor makes up 35% of your credit score. You can avoid late payments going forward by setting up automatic payments from your credit cards and other bills.

4.Have a Long Credit History

Having a relatively long credit history affects 15% of your credit score.  Millennials should not close credit card accounts they have opened several years ago as it shrinks a person’s available credit.

Your credit history can be longer if a relative who has a long and awesome credit history is willing to help you and can add you as an authorized user of one of their credit cards. This is one of the simplest and fastest way to boost your  score. The old card will show up in your credit report and you can also get credit for the history of on-time payments This also means that you have access to your relatives line of credit and if you make purchases it will affect your relative’s credit utilization and  it would be the ultimate responsibility of your relative for paying back what you borrow. So that means the relative needs to trust you to be responsible for your purchases. You can avoid purchases altogether –would be vital.

5.The Necessity of Credit Cards

One of the great ironies of earning a good credit score is that you must have credit to build credit. So having a credit payment history is very important as it accounts for 35% of your credit score. If you do not have a credit card do get one. You can open a credit card for small day-to-day purchases and it should be paid in full each month to build your credit history.

You need to have a mix of types of credit as it affects 10% of your FICO score. Having different types of credit accounts will also improve your  score. In addition to a credit card if you have an auto loan or mortgage that you make on-time payments each month or another credit card pay off each month it will help you to improve your scores.  Obtaining more credit cards at one time can lower your score more.

According to McBride’s you have to “keep your borrowing modest particularly if you have an existing car loan or student loan debt, ”and that  “ paying bills on time , keeping  debts  modest and paying your debts in time  accounts for almost two-thirds of your  score”.

About the Author: 

My name is Jhaden Pearl Taylor a Financial Adviser at Zinu Credit Repair. It is a legitimate credit repair agency in US. That offers a free credit repair consultation, which includes a complete review of your FREE credit report summary and score. If you are looking for the best credit repair company in your area. Please contact me.