A higher credit score can unlock a wealth of financial opportunities. Christian Widhalm, CEO of Bloom Credit, joins TheStreet to discuss the factors that affect your credit score and the easiest ways to improve it.
Related: Here’s the average credit score for Americans — and the keys to improving it
Conway Gittens: OK Let’s get down to the practicalities. What’s your best advice for someone trying to improve their credit score?
Christian Wedelham: So credit scores are really interesting. There are two main types of credit scores. FICO (Fair Isaac) can be said to be one of the godfathers. The other is VantageScore. Therefore, people usually see two. They are usually outside the upper limit of 850. Therefore, a person with a credit score above 800 is considered excellent. You are so awesome. The reality is that these formulas exist and reside in black boxes, and it’s difficult to truly tell someone what impact their credit score will have based on activity. What I can tell you is that when generating scores, these scores typically take into account certain aspects of your overall credit profile. The heaviest one, I think 35% is positive repayment history. Do you actually pay your bills on time and not be late?
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Another is credit utilization. I think these factors combined account for about 70% of the actual weight in the score. The credit utilization ratio is that I have a $10,000 credit limit on my credit card, but my balance is $9,000. That’s 90% utilization, right. This is considered high. This may actually lower someone’s credit score. So one is to open up credit products. But be responsible for opening up credit products, making sure you’re actually controlling utilization, making sure you’re not actually applying for too many products at once, because those inquiries that end up affecting your credit report can also get you into trouble. But another way is to start taking advantage of the new credit-building products that are coming out on the market that really take other types of stuff like our checking account stuff that we talked about, your rent, your telecom payments, your utility payments. These can be converted into real trade lines, which is how they appear on your credit report. They have a real impact on scoring. Therefore, there are multiple solutions that are readily available steps, and consumers just need to be aware of all of them.
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