A higher credit score can unlock a multitude of financial opportunities. Christian Widhalm, CEO of Bloom Credit, joined TheStreet to discuss the factors that impact credit scoring as well as the easiest ways to raise your score.
Related: Here’s the average American’s credit score — and the key to improving yours
CONWAY GITTENS: All right. Let’s get down to the practicalities. What are your best tips for someone increasing their credit score?
CHRISTIAN WIDHALM: So credit scores are really interesting. There’s two main credit scoring credit scores that are out there. One which is kind of the godfather of them is FICO, the Fair Isaac. The other is VantageScore. So there’s two that are typically out there that people will see. They both are typically out of the 850 range where they kind of cap out. So someone over 800 credit score that’s deemed like excellent. You’re very super prime. The reality is that those formulas live and reside within Black boxes right where it’s very hard to actually go and tell somebody exactly what the impact of their credit score is going to be based upon activity. What I can tell you is that those scores typically factor in certain aspects of your overall credit profile when generating a score. The heaviest one, I think of 35% is positive repayment history. Have you actually been paying your bills on time and not being late.
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The other one is credit utilization. So those I think, combined to around 70% of actually the weight of what’s in the score. And credit utilization was I have a $10,000 credit line on my credit card, but I have $9,000 in balance. That’s a 90% utilization, right. That’s considered high. That would do something to actually potentially lower someone’s credit score. So one is to open up credit products. But be responsible with opening up credit products, make sure you’re actually controlling the utilization rate, make sure you’re not actually applying for too many products at once because those inquiries that ultimately hit on your credit report can also potentially ding you. But the other is to start taking advantage of new types of credit building products that are emerging in the market that really take other types of data that we talked about checking account data, your rent, your telco payments and your utilities payments. Those can be converted into real trade lines and trade lines is how they’re shown up on your credit report. And they have real score impact. So there’s multiple solutions that are steps that are out there and consumers just need to be aware of them all.
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