Factors That Affect Your Credit Score
Your credit score may be just a number to you, but it can have a huge impact on your life overall. This is the key indicator lenders use when determining your credit worthiness and risk potential. Even if they agree to loan you the money, your credit score is directly correlated with the interest rate you pay. Additionally, your score can even have an impact on your auto, life, and homeowners insurance premiums. While building up your credit is an important step in anyone’s life, it’s even more important that you carefully maintain what you have. You will want to review your report at least once annually, and ensure you are current on all payments and understand each account that is reported. While there are a multitude of factors that play into your credit score, below is a summary of the more important ones to pay attention to.
Your payment history makes up 35% of your overall profile. It involves the timeliness of each monthly payment, particularly making sure you do not exceed thirty days late from the due date, which will be reported as a negative impact against your report. A day late can cost you a late fee or interest rate hike, but isn’t typically recorded as a late payment to the credit bureaus. If you have any issues with repayments, including bankruptcy, tax liens, and repossession, they will have tremendously negative impacts on your score.
Lower Utilization Rate
When calculating your credit utilization rate, you should focus on maximizing a credit balance that is no more than 30% of open credit available. If you can swing a lower utilization rate, that is even better. This isn’t a one and done problem or solution. The further you get from having an overly-utilized line of credit, the better your score will get. There are other ways to lower the utilization rate as well. If you are disciplined enough, taking out an additional line of credit could be an option. You wouldn’t actually borrow against it, but rather, use it to superficially increase your total available borrowings.
When you apply for a new line of credit, it only makes sense that the creditor will perform a credit check. Credit inquiries are about 10% of your total credit score. One or even two inquiries may only reduce your score by a few points, however, if you keep applying for accounts within a short period, it could give the impression that you’re looking to spend outside of your means, even if you were only checking rates.
When it comes to having your credit pulled, you should be aware of the two types of checks. A hard pull or inquiry will affect your score in which the creditor will ask for your permission to view your records. Meanwhile, a soft pull occurs usually without you knowing, when you likely receive a credit card offer in the mail. It could mean the credit card company took a look at your records to determine if you initially qualify for the card.
The Length of Your Accounts
The length of maintaining an open account can have a positive effect on your credit score. The age of credit mostly takes up 15% of your score and creditors will view the oldest account as showing that you have acquired some experience when it comes to handling credit. Even if you have a zero balance, it’s a good idea to keep the account open as not only the age, but having that available credit will help your overall profile.