5 Factors that Affect your Credit Score

October 8, 2020

Your credit score is an important piece of your financial life. A good credit score gets you access to more loans with better terms. A low credit score makes it hard to get financing and sometimes even insurance or a job.

So how do you increase your credit score? Check out the top 5 factors that affect your credit score. 

1. Payment History

Your payment history is the most crucial component of your credit score. It makes up 35% of your credit score. Even one late payment can drop your credit score significantly.

Credit bureaus don’t know about your late payments until they are more than 30 days late, so if you mess up, but pay your bill before that 30-day point, you’re still okay. If you miss 31 days, though, it’s a hit on your credit score as are each increment of 30 days that pass before you make the payment.

2. Credit Utilization

The amount of your outstanding credit line compared to your total credit line is your credit utilization rate.

If you have more than 30% of your balance outstanding, it hurts your credit score. Your credit utilization rate makes up 30% of your credit score too, so it’s the second-largest component.

Stay aware of how much you’ve charged, what you’ve paid off, and your existing credit card balance to keep your credit utilization rate under control.


3. Credit Length (Age of Credit)

15% of your credit score is the length of your credit history. The longer or older your credit, the better impact it has on your credit score.

There’s not much you can do about your credit length except wait it out and don’t close old accounts. Even though it seems logical to close old credit card accounts that you don’t use, don’t – it lowers your average credit age.

The credit bureaus average the age of all credit accounts to come up with your credit length. Instead, leave them open, but unused and it will help your credit score.


4. Credit Mix

The type of credit you have outstanding plays a role too. For example, if you have too much revolving debt outstanding, lenders see you as risky. If you only have installment debt and no experience with revolving debt, it looks risky too.

Credit mix makes up 10% of your credit score, but that’s enough to push your score to the next threshold. Carry a good balance of both types of credit for the best results.


5. Inquiries

Only apply for new credit when you need it. Even though you receive tons of pre-approval letters in the mail, refrain from applying for them unless it’s something you need.

Every inquiry hits your credit score for 5 points. It’s not a lot, but if you apply for too much credit, it works against your credit score. Inquiries stay on your credit report for 2 years.


Maximize your Credit Score by Understanding the 5 Factors that Affect It

Work to maximize your credit score by making the most of each of these factors. Most importantly, pay your bills on time and watch your outstanding credit, but watching all factors overall will provide you with the best credit score.

Rahul Iyer

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