Whether it’s a college education or a job or a house on rent, you should have a good credit score to get approval on your application. So, are you sure all of the factors you’re well known that are vital for making your credit score? If the answer is “no”, here’s my article will help you.
What are the factors that are essential for your credit score?
Have a look at the various factors that influence your credit score.
Factor- 1: Payment history on account (35%)
Making timely bill payment is one of the important factor that decide whether or not you’re a credit worthy person. You should follow the below factors. Such as:
1. Late payments will highly affect your credit score. It can trash your credit score as 35% of your credit score comprises of payment history.
2. If you’re late on your payment, then how many days? Remember, 90 days+ late has a bigger negative effect on your score. You may be charged for high late fees or penalties.
3. If any of your account goes to the collectors, then it will be taken as negative factor.
4. If you have charge offs, debt settlements or bankruptcies, foreclosures, suits, wage attachments, liens or judgments, then you’re not a potential borrower as per the lender’s perspective.
Factor- 2: Length of credit history (15%)
The length of your credit is another major factor that affects your credit score. Try not to close the unpaid credit card accounts to shorten the length of the credit history. It will hurt your score. Try to Pay off the balances before closing your credit card accounts. Remember a long history is good but make sure the balances are paid on time. The factors that matters:
1. From the time you have been using credit.
2. The average age of all your accounts.
Factor- 3 : Amounts owed on your cards (30%)
Next factor that affects your credit score is how much you owe on your cards. You need to charge less than 10% of the credit limit set on your credit card, if you’re trying to max out on your credit score. Some other important factors are:
1. Make sure you’re maintaining the credit limit and you don’t owe a big amount on your credit cards.
2. Remember, lender always want a financially responsible borrower who can pay back the owed money. So, less amount is better than owning a big amount which you’re not able to pay back.
3. Credit scoring software will see how much money you've owed on each type of account. For instance, you're owed money on mortgage, auto loans, credit cards and installment accounts. You need to manage them all at a time to get a good credit score.
Factor- 4 : Types of credit in use (10%)
What are the types of credit that you’re using? You need to have good score with a mixture of revolving credit such as credit card, mortgage loans and car loans. Don’t panic if you don’t have accounts in each of these mentioned accounts. It is one of a small factor of your credit score . So, there is no need to open an account to just boost credit types.
Factor- 5 : New credit taken (10%)
Your FICO score depends on:
1. All the applications that you have recently made.
2. Recent inquiries, the recent applications for new lines of credit, how old is your each inquiry?
3. Remember, inquiries made within a short span of time will not be counted as a single one as per the FICO.
Final words
It is mandatory to have good score so that you can get a loan or a new line of credit at an affordable rate. Try to take into account these points so that you can take the right steps towards your debts and your score.