5) Lower Your Debt-to-Income Ratio
The amount of monthly debt payments you need to make versus your total monthly income is your debt-to-income ratio. This is how lenders and creditors get insight into your ability to pay your debts and manage your income per month. To calculate DTI, your total regular monthly debt is divided by your total regular monthly income. If the ratio is low, then it means you have a healthy amount of income to pay your debts each month. But if you have a high DTI ratio, it tells lenders that your debts exceed your income each month. This obviously makes you more of a risk to lenders. You can lower your DTI ratio if you pay down your debts. It will increase your credit score too.
6) Have Some Debt Variety
You can increase your credit score by having different types of debts that you’re paying on. For instance, if you have a home loan, bank credit cards, gas station credit cards, and a car loan, this is a lot of debt variety that will boost your credit score. According to FICO research studies, a credit report with many different credit types will make them seen less risky to lenders. But if a report shows just one credit type, it is seen as more of a risk. For instance, if your total debt is $200,000, it should be divided amongst things like car loans, mortgage loans, and credit card loans. If this $200,000 debt is all from credit cards only, then it is bad for your credit score. Credit types have a 10% influence on your credit score.
7) Hold onto Your Credit Cards Always
Credit history influences your credit score. If you have a long history with your credit cards or loans, that will help your score a lot. It tells lenders that you can be responsible with credit over a long period of time, assuming you have made your payments on time. As a result, they will be able to trust you more with their money too. If you can maintain your credit card accounts, regardless of whether you’re actively using them, then you can keep your credit history strong. If you end up closing your credit card accounts, it will actually decrease your credit score because it lowers your credit history with those accounts. On the other hand, if a credit card account has an annual fee that you don’t want to pay, then you should cancel the card for sure.