Major Factors That Influence Your Credit Score
Our credit score influences our everyday life in more ways than one. It’s one way to show lenders, creditors, and sometimes even potential employers how well you’ve handled your financial obligations in the past. A higher score indicates less risk in extending credit to you; a lower score indicates that you may be a higher risk. A good credit score can mean the difference between now and getting the things you dream of. Here are some of the things that affect your credit score rating.
- Payments history: Paying your bills and loan payments on time can help you improve your payment history score.
- Debt utilization: The lower your utilization ratio, the more appealing it appears to lenders. Maintaining low balances on credit cards can help you improve your credit score. Your utilization ratio informs potential lenders about the amount of debt you owe and how much of your available credit you are using.
- Credit history: Your credit score also considers how long you have been using credit. If you do not have a long credit history, you can improve your credit score by establishing credit to demonstrate your financial responsibility.
- Credit consultations / new credit verifications: Too many credit applications and new credit accounts can lower your credit score.
- Credit types: Combining different types of credit accounts can help raise one’s credit score.
The payment history carries the most weight of these five factors, so it is critical not to overlook the payments. However, as the second most important factor, your total debt is very close.
Because so many factors influence your credit score, attempting to improve it can be difficult. Because each factor interacts with others, it is difficult to say how much influence one action in particular (one late payment or credit consultation, for example) has on your overall score. That does not mean you should be frustrated, but it does mean you will be tempted to be! The basic issues are applied regardless of the scoring model used to evaluate the data from your credit report. Understanding these factors and implementing some key strategies can aid in the development and maintenance of one’s credit.
People often have misconceptions about things that affect credit scores.
Here are some popular credit score myths.
- Salary reduction
A salary reduction may impact your personal and financial life, but it will have no direct impact on your credit scores. While your income isn’t generally used to calculate credit scores, it’s important to note that some lenders and creditors may consider it when evaluating a credit request.
- Getting assistance from a credit counselor
There are numerous credit scoring models, and most of them do not consider whether or not you are engaged in a credit counseling service.