Did you know that a 650 credit score is the most common FICO score in America today? You may be wondering what makes up a credit score, and most importantly, if there is anything you do to improve your average credit score of 650 to an excellent score of 800.
There are many components that make up a credit score (or FICO score). These include the length of time you’ve had your credit accounts, your debt to equity ratio, the type of debts you’ve had, and your payment history. Let’s explore each to give you a better understanding of these metrics for score calculation.
If you have been borrowing money for over 10 years you are in good shape. If you don’t have much of a credit history, then each year your accounts are open will add to your credit score.
Debt to Equity Ratio
This factor is a simple mathematical calculation. If you have a $10,000 credit limit on your credit card and you have $6,000 on that credit card, your debt to equity ratio is 60%. If you have multiple accounts, such as a credit card, car loan, school loan, and a store credit account, you simply add up all your debt and compare that to your overall available borrowing power. If you are looking to improve your 650 credit score to the 800 range you will want your debt to equity ratio around 30%, meaning that 70% of your borrowing power is unused.
Types of Credit Accounts
A variation in credit account types is essential to improving a credit score of 650. Most people in this range will have only one credit type, such as credit cards. By adding an auto loan and a personal loan, your credit account history will diversify, which will have a positive impact in improving your credit score.
Perhaps the most important factor for improving a 650 credit score is a consistent history of early or on-time payments. By paying on-time it shows your creditors that you are able to manage your debt, giving them confidence that if you apply for more lines of credit you are likely to be a good account. If you have been late on payments in the past, a disciplined 3-6 months of early payments should improve your credit score.
By following the four factors outlined above, you should be well on your way to improving your 650 credit score, and perhaps one day seeing a FICO score of 800 or higher.