1.Why
do different age groups tend to have different credit scores?
Life
experience and time are two factors that may play a role in the
differences in credit scores among generations. Young people typically
have shorter credit histories, may have larger debts such as student
loans, and generally lower limit credit cards with higher
balance-to-limit ratios. Older adults, particularly as they near
retirement tend to have longer credit histories, debts usually decrease,
and utilization rates slip down. Scores historically increase as
people age because their life circumstances change and time shows that
they are reliable credit risks. That doesn’t mean a younger person
cannot have very good credit scores if they use credit wisely, or that
older adults can have very poor credit scores. But on average time and
experience lead to better scores.
2.What
are some tips for younger consumers to use credit responsibly?
There
are just a few things that a person of any age needs to do to ensure
they have good credit scores. First, open a credit account. You won’t
have a credit history until you have an open account. Having one or two
credit cards is helpful. You don’t need more than that. Second, pay the
bill on time every month and at least the minimum due. Ideally, though
you should pay the balance in full each month. That leads to the third
thing you must do. In order to have good credit scores you must keep
your credit card balances as low as possible. To build good credit
scores, make a small purchase periodically and then pay it in full. That
will show activity in your credit account and credit report, and
maintain a low utilization rate.
3.What
are some key factors that negatively affect credit scores, besides
missed payments?
Missed payments are the obvious and most important
factor in credit scores. The second most important factor is the
utilization rate on revolving accounts. That simply means you need to
keep your credit card balances as low as possible. The lower your credit
card balances, the better. Together, late payments and utilization
account for more than 60 percent of a credit score. All other factors
build on those two items. Your length of credit history, recent credit
activity (such as paying off a debt, opening a new account, closing an
account, and so on), and balances remaining on installment loans and
other debts all play a less significant role. If you are paying your
bills on time and keeping your credit card balance low, all of the other
elements will be positive, too.
4.If
someone wants to raise their credit score, how can they do that?
There
are two things that everyone can do to help their credit scores. First,
if you have late payments, catch up and then make all of your payments
on time, every time. Second, reduce your credit card balances. Payment
history and revolving account utilization are the two most important
factors in credit scores. Beyond those two things, every credit history
is different, and the things that each person should do differ, as well.
To find out what you need to do, get your credit report, a credit
score, and the risk factors that go with that score. The risk factors
tell you what, from your personal credit history, are most affecting
your credit score. Address those risk factors and all of your scores
will get better. The numbers can be different from one scoring system to
another, but the risk factors are very consistent. You can purchase a
VantageScore from Experian when you request your free annual credit
report at www.annualcreditreport.com. You also can get a free credit report and free FICO credit score at www.freecreditscore.com In
both cases you get the number, an explanation of what it means in terms
of risk and the list of risk factors that most affected the score. The
risk factors are empowering because they tell you what you can do to
make your scores better.
If you want to learn more, read this guide about what actions you can take to improve your credit score today.
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