A credit score determines the creditworthiness of a person by a 3-digit number in a system accessed by lenders. The higher the score, the more trust or potential a person has with a lender – but how is this number calculated? A person’s credit score consists of several important factors.

If you have a low credit score, there are steps you can take to improve it. Continue reading to learn how a debt consolidation loan can assist you with getting back on track with your credit and paying off debt.

Payment History

Payment history accounts for a significant amount of your credit score. The scoring system used to measure your creditworthiness is a FICO score. Your payment history is the most important contributing factor to your credit score. If you would like to improve it, ensure that you never miss a payment or risk a negative impact on your score. Making regular and on-time payments can help you maintain a decent credit score.

Credit Utilization Ratio

The second biggest factor to impact your credit score is your credit utilization ratio. This ratio is calculated by dividing the total amount of revolving credit you currently hold by the total amount of all revolving credit limits. Additionally, it helps determine how much of your available credit you are using. Typically, the rule of thumb is to use less than 30% at any time. Using more may have a negative impact on your score.

Length of Credit History 

The longer you hold a credit account open, the more likely you are to improve your credit. Holding on to old accounts helps you maintain credit history. If you’ve considered closing out a long-held account, it may have an adverse effect than desired. This factor takes the age of your oldest account and newest account to create an average. It takes a long time to build history, so the longer your credit history is, the better your credit scores will be.

Credit Mix

A credit mix is a diverse collection of credit accounts. For example, these can be credit cards, car loans, personal loans, or even student loans. If you are carrying a few or several different credit accounts, this can be seen as a positive indication of your responsibility. Having many varied accounts shows that you are a person who can manage credit well. However, the reverse of this is that if you open up too many different lines of credit, this will start to have a negative impact on you score.

New Credit

Even if necessary, opening a new credit account may diminish your credit score. The number of new credit accounts opened and hard inquiries when applying for credit can make you appear risky. Lenders are less likely to trust you when you have too many accounts because you may not be able to pay back what you owe. As a borrower, your score affects how much you can borrow as well as your level of risk to lenders. Ensure that you are making the right decision before opening a new account, as this can harm your credit score rather than help it.

Debt Consolidation Loan

If you are looking for a way to get back on track with your credit and pay off debt, consider a debt consolidation loan. Combine multiple accounts with credit card debt into one account, and you can pay back what you owe in lower fixed monthly payments. This helps you make repayments on time, improves your credit utilization ratio, and more.

 

If you have questions about debt consolidation loans, speak to our team of knowledgeable professionals. Our compassionate loan matchmakers will find the best terms tailored to your unique situation with fast approval and rates starting as low as 3.84% for amounts up to $100,000. 

Get started today on our website. Prefer to talk in person? Call us at 833-453-6324 and we’ll get you connected immediately with one of our loan experts.