Key Factors That Affect Your Credit Score
How important is your credit score? For many people, it’s one of the most critical factors that determine whether or not they can get a loan. If you are looking to borrow money for a new car, home renovation, or other large purchase, you can consider some factors to improve your credit score.
Below are some factors that affect your credit score
Your Payment History
This is the most critical factor that affects your credit score. If you have a history of paying bills on time, this will reflect positively on your credit report and result in an increased credit score. If you are constantly late with payments, or even worse, defaulting on them completely, it will be reflected negatively when your credit score is calculated.
Amounts Owed
Another important factor that lenders look at is the total amount of money you owe. This includes all your credit card balances, car loans, and any other debt you may have. If you owe a lot of money compared to your income, this will appear as a red flag to potential lenders. They will be worried that you won’t be able to repay the debt, and as a result, your credit score will be decreased.
The Length of Your Credit History
The longer you have been using credit, the better it is for your credit score. This demonstrates to lenders that you are a responsible borrower who can be trusted with a loan. New borrowers may not have as high a score as those who have had credit for many years.
It is important to have a good mix of credit in use. This can include using your credit cards, taking out car loans and mortgages, and having installment debts such as student loans or medical bills. If you only take out one type of loan, this could indicate that you are financially unstable, resulting in an unfavorable credit score. Having different accounts with your creditors will be beneficial for your credit score. This includes having separate car loans, mortgages, and store cards that appear on the credit report.
New Credit Inquiries
Potential lenders will want to know who you are applying for a loan. All new credit inquiries appear as negative marks on your credit report, so it is best not to take out too many loans in one month, which can affect this factor is included when calculating your score. An employer looking at an employee’s credit score may also view this as a negative factor.
