In today’s economy, the most important number to most people is their credit score. It doesn’t only affect the interest rates that you have to pay on credit cards. It can also be the decisive factor for lenders on whether or not they will approve your loan requests. Some insurance and utility service providers have even started considering credit scores as a way to decide whether or not to offer discounts. Below are some of the most important factors that impact your credit score.
Your Bill Payment Routine
Roughly 35% of your credit score is based on your payment history. Paying your bills on time is one the most important factors that affects your credit score. Major payment issues including collections, charge-offs, repossessions, bankruptcy, tax liens, and foreclosures can greatly damage your credit score. If you have a lot of payment issues that have hurt your credit, get in touch with us and we can help you repair your credit score.
Your Debt Situation
The second most important factor affecting your credit score is your debt level. Around 30% of your credit score is based on your debt history. Credit agencies look at a number of factors relating to your debt level, including: the total amount of debt you carry, your credit utilization ratio, and the ratio of your loan balance to the original amount you owe.
A good practice if you want to raise your credit score is to keep your credit utilization under 30%. In other words, never use more than 30% of your credit card’s limit. Having high credit card bills and hefty loans can severely hurt your credit score, but if you can afford high monthly payments, you can increase your credit by paying on time.
Credit History Age
This refers to two things: the age of your first credit account and the average age of all of your credit accounts. Credit history age carries a 15% weight in calculating your credit score. The older your credit account is, the more it will help your credit score. A long history of using credit shows that you have a lot of experience in handling your finances. A good practice is to avoid opening new credit accounts and focus on maintaining a good credit score with your current accounts.
Variety of Credit Accounts on your Report
There are two major types of credit accounts: revolving accounts and installment loans. Having a variety of credits indicates that you are capable of paying your balances on time. Having loans for different things such as car loans or personal loans, in addition to a credit card, is also good for your credit score. However, this factor accounts for just 10% of your credit score, so not having a specific type of loan will not have a huge negative impact on your credit score.
Number of Credit Inquiries
Whenever you apply for any financial facility that needs a credit check, an inquiry is added to your credit report which indicates that you have applied for a credit-based account. However, inquiries only make up 10% of your credit score, which means that having a bunch of credit inquiries on your report won’t be devastating. We do encourage that you try to keep inquiries to a minimum. Only the inquiries initiated within the last year are included in your credit score, and after two years, the inquiries are permanently removed from your report.
In Conclusion…
Your credit score is a very important factor if you want to have financial freedom. It is calculated based on a number of factors. Five of the most important factors were explained here. To maintain an acceptable credit score, you need to pay your bills on time and keep your credit utilization low. If you are interested in learning more about improving your credit score, get in touch with us! We have a variety of plans for all types of credit users, and we can help you repair your credit score.
