Your credit score is a number that’s generated based on all the information on your credit report. It’s one of the main factors that lenders use to determine whether or not you can be a high-risk client for any of the loans they lend out. But this does beg the question, what affects your credit score?
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Most Americans it may seem pretty straightforward but your credit score is based upon how much credit you’ve taken out and how quickly you pay back. It’s a common misconception that that’s one way to build your credit as well but also have a reduction in your credit score. Although part of this is correct there are many factors that determine the 3 digit number for you. And this three digit number is significant to us to reach those Financial Milestones later on in life.
Like we said there are many factors to determine your credit score, but right now we’ll take a look at a simple formula used that completely weighs in on that number. Understanding this formula is pivotal to everyone who asks how to fix my credit score. So here are the 5 most important elements to your credit score.
Payment History. When it comes to your credit score, your payment history is the most important factor. It accounts for 35% of your credit rating. Having a history of on-time payments to any credit that you owe it’s only beneficial to you improve your creditworthiness in the eyes of the lender. Although if you’re unable to make payments consecutively each month it can hurt your credit score and put you in a position as a riskier person in the eyes of the lender. If you have ever been in a situation where you have missed your credit card payments and have known that they are affecting your credit score don’t worry. If you begin to make on-time payments your credit score will start to go up over time.
Credit Utilization. This accounts for about 30% of your credit score. And it’s actually one of the quickest ways to either improve or worsen your credit health. This factor is contingent on your credit utilization. Credit utilization is calculated by the amount you owe vs the limit you have. Ideally, for this not to impact your credit score greatly, you should not have it higher than 30%.
Length of Credit History. The amount of time you’ve had a credit account can either be beneficial to you or act against you. If you are fairly new to credit, this can actually impact your score negatively. Although if you had your credit for a while and they remain in good standing for 7 years this can greatly increase your credit score. This accounts for 15% of your credit score. It also looks at how long you have had your oldest credit account, your newest credit account and also the average duration for your credit accounts. Your closed accounts are also reflected in your credit report and can remain for up to 10 years. Although the negative implication to this is that if the closed account if your longest standing account, your credit score can take a dip.
New Credit. When applying for new types of credit loans such as a mortgage or car loan can affect your credit score. These are considered hard checks. When it comes to soft checks such as finding out your credit score or applying for cellular service these do not affect your credit at all. This accounts for 10% of your credit score.
A mix of accounts. Depending on the types of accounts you have can be very beneficial to you and your credit score. For example, having multiple credit cards may not be the best for you and your credit score. Although having a mix of different accounts such as a mortgage, car loan and line of credits can be extremely helpful.
Now that we have some insight into what affects your credit and what percentage they consist of. Let’s take a look at what types of credit accounts affect your credit score as well.
When you request your credit report the information that is presented is mostly between two types of credit accounts. These are installment loans and revolving credit.
Becoming a lot of factors and the percentage of weight they have towards your credit score. But there are a few misconceptions that we feel that we should touch on. And these are factors that don’t affect your credit score but many people believe they do. Information such as your income, your employment status, age, marital status is all factors many consumers believed to affect their credit score directly. Although this has been proven not to be true. But in contrast to that these factors may not affect your credit score directly but they can definitely influence your ability to be approved for a credit loan. For example, if you’re unemployed but have a high credit score you still can be seen as a risky candidate simply because you have no income to make payments on the loan.
As credit becomes much more prominent in people’s lives, it’s imperative that you should always be aware of what your credit score is. Make sure to always check with the credit bureaus to get an accurate credit report and following up with the question “How can I fix my credit score?” it’s a great way to remain in positive light to lenders so you won’t have an issue ever getting credit.
Questioning your credit score? Or asking yourself “How to fix my credit score?” call us and we can help you get back on track: 1-888-8888