Once again, let us be brutally honest. A credit score seems to be a mystery that adults know but will never tell to kids at school. You devoted years of your life to calculus or literature, and suddenly you face the existence of the three-digit magic number determining your financial life. What unfair it is! This number will decide whether you will live in an expensive apartment in Brooklyn or will pay a predatory interest rate on a used Toyota Camry. In other words, it is a GPA of your money life and landlords will care about it more than your thesis advisor cares about your GPA.
All the process depends on the information collected by three big companies. They are named Experian, TransUnion, and Equifax. These guys collect the information about your student loans, credit card payments, and even that forgotten store card. VantageScore works with the scale of 300-850, just like FICO, but gives different importance to the aspects. These companies can be compared to rivals competing in the financial reputation of yours. There are real criteria in this rating system, and it is wonderful because you do not grade on a curve here.
Payment history leads in the ranking of the factors affecting your credit score. It contributes to 35% of your FICO score, and it is quite clear. Creditors want to know whether you pay your debts, period. One missed payment will be a catastrophe for you; therefore, you should make your automatic payments right away. Do it now while thinking about it and organize an autopay in your Chase or Bank of America account.
Credit utilization ratio follows in the list of the factors affecting your credit score. It sounds boring but can be considered as a secret weapon of yours. It is the ratio of your debts to all of your credit limits. If you have a limit of $1,000 and a debt of $300, then you use 30%. It is the perfect percentage mentioned by experts, but lower is always better. Consider this point if you try to rack up your reward points with your cards being maxed out each month.
Length of credit history is also important, which is quite annoying taking into account your 23 years. Therefore, you should never close the oldest credit card even if it does not give you any rewards at all. Finally, the last two factors are inquiries and mix of the accounts. However, you should not be worried about them as you already have a mortgage and five credit cards.
To conclude, one more factor to consider is psychology of the whole situation. It is very easy to get obsessed with the number displayed on your Mint app or Credit Karma. It hurts to see that your score dropped by ten points after opening a new credit account. Do not go crazy in such a case because the algorithm works, and it sometimes adjusts. Just pay your bills and do not worry about fluctuations of the score. It is really that boring, and that is actually great 🎓.