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Top Five Factors That Determine Your Credit Score
Your Payment History.
Approximately thirty-five percent of
your credit score
is derived from your payment history. Negative credit events that can tarnish your credit score include bankruptcies, collection accounts, slow payments or late payments, foreclosures, judgments, liens, etc. Conversely, timely payments and a history free of the above credit events helps to increase your credit score over time. Your credit is most affected by recent late payments, as opposed to negative items which occurred a long time ago.
Revolving Credit Usage.
The next major factor in determining your credit score, which dictates thirty percent of your credit score, is how you handle revolving credit. This refers to how much revolving credit you have available to you in comparison to the amount you have used. The credit companies are most interested in how you manage your credit, so it is best to avoid extremes - don't use all the credit you have available (and certainly don't exceed this amount), and don't pay off all of your accounts either. The best credit usage ratio falls between roughly twenty and forty percent of your total credit limit. This is generally a good balance of usage that will help yield a good credit history.
Length of Credit History.
Fifteen percent of
your credit score
is determined by the length of your credit history. Having a longer and more established credit history will positively impact your score, simply because you have demonstrated a consistent payment pattern over an extended time period - making you a far better credit risk than someone with a short history. In the eyes of the credit companies, long-term accounts that have been properly maintained carry more weight. In situations where you may need optimal financing, the length of your credit history factors in highly.
New and Recent Credit.
To a lesser degree (ten percent), the number of new credit accounts you open can
boost your credit score
. The reason this is not a good pattern is that these accounts are not established, and you may have many inquiries involving various lenders and types of financing, but over a short period of time. There is nothing wrong with comparing lender rates, provided you carry out these inquiries over a time period of a month. It is important to remember that your credit score is only impacted by legitimate credit applications, such as when you are applying for a home or auto loan, or a credit card.
Credit Mix.
The final ten percent of your credit score can be impacted by the various types of credit that you utilize. A person who carries a good variety of credit - for example, a home loan, auto loan, two to four credit cards, and a personal loan - will fare much better on their credit score than someone with fifteen-plus credit cards. Instalment loans and mortgage loans are also excellent liabilities to have on one's credit portfolio.
Overall, the more knowledge that you are equipped with, the more in control you will be with your credit. Knowledge really is power when you want to
boost your credit score
! It is important to understand your credit reports and scores, and how credit scores are determined. A yearly check on your credit report is essential to guard yourself against inaccurate information, in addition to protecting against identity theft. According to a new law, all borrowers are entitled to access their credit report from each of the major credit repositories once a year to review and confirm the information in their credit history. It is recommended that inquiries be made to each company separately, so that if there is an inaccurate entry, it can be disputed with that particular company. This free credit report will not provide you with your actual credit score, but you may obtain this for a small fee.
