What Affects Your Credit Score?

A good credit score is a sign of financial responsibility. It can allow you to qualify for lower interest rates on loans and credits and provide you with better financial opportunities. It can also help you get approved for mortgages and apartments and obtain a better rate on car insurance.

Knowing what factors affect your credit score can help you understand what steps to take to improve it.

Payment History

Your payment history is one of the key factors lenders, and creditors will typically check before deciding to extend credit to you. In addition, it accounts for nearly 35 percent of your overall credit score, making it extremely important to keep up with.

Your credit history includes information about your on-time payment of bills and any delinquent accounts or collections. Making prompt payments on all your accounts can help you make a positive payment history. On the contrary, failing to meet your financial obligations on time can have a negative impact on your credit score.

Amount Owed

The amount you owe on your credit is the second predictor, accounting for 30 percent of your credit score. This factor affects your credit score in two different ways. First, it impacts your credit utilization ratio (the amount of credit you currently use versus the amount of credit available).

A lower utilization ratio contributes to a better credit score. In addition, too much debt or skipping payments can negatively affect your score.

Length of Credit History

This means the length of time you have been using credit. In general, the longer the length of your history, the higher your credit score. A longer credit history demonstrates to lenders and creditors that you have successfully managed your credit over a long period of time.

It also provides additional information for lenders to consider when deciding on your creditworthiness. With a good credit history, it can be easier for lenders to decide whether to lend you money. The length of your credit history makes up 15% of your credit score.

New Credit

Your new credit accounts make up ten percent of your credit score. New credit applications can positively or negatively impact your credit, depending on the type of credit you are applying for and how you manage it. For example, making timely payments on your new credit can increase your credit score and vice versa.

Credit Mix

Similar to new credit, credit mix accounts for about ten percent of your overall credit score. This is when you have different types of credit accounts. It can help improve your credit score because it demonstrates to lenders that you can manage a variety of credit accounts responsibly.