Over 300 million people in the US carry some form of debt. Credit is a helpful way to spread the cost of purchases and cover much-needed expenses, but responsible credit management is key.
This is where credit scores come into play. If you’re new to the world of borrowing, you might be wondering what goes into getting your credit score calculated.
Here are the five factors that make up your score.
Your payment history is the biggest factor in determining whether or not you have a good credit score. It makes up around 35% of how your credit score is calculated.
Paying your bills (and more importantly, paying them on time) is the best thing you can do to improve your credit score and avoid being penalized. Missed or late payments can be a big hit to your score and should be avoided under any circumstances.
Amount of Debt
The next biggest of the credit score factors is the amount of money that you owe. This is the total amount of outstanding debt you have on any line of credit. Owing a larger amount doesn’t necessarily negatively affect your score.
The best way to think of it is as a ratio. The more of your credit that you are using as compared to your limits, the more negatively your score will be impacted.
It’s important to remember here that the goal isn’t to be using none of your available credit, as that can also bring your score down, or at best, make sure that it never grows.
You want to try and keep all of your lines of credit below 50% of your limits.
The longer you have healthy lines of credit open, the better. Having a long credit history of on-time payments and responsible borrowing is a good sign for lenders.
This is one of the reasons that younger people just opening lines of credit for the first time will have worse scores than their parents or older acquaintances. Lenders use your credit history to get a full picture of your borrowing abilities. If there is no long history, then it’s hard for them to tell what kind of borrower you are going to be.
Mix of Credit
This relates to all the different types of credit that you have open. Personal loans, credit cards, installment plans, car finance, etc. While not a huge aspect of determining your credit score, it can have a positive effect.
Having lots of varied open lines of credit that you manage well signifies to lenders that you are a responsible borrower who can handle multiple different kinds of credit.
Finally, there is any new credit on your file. While it can be beneficial to have a wide array of different types of credit, it’s important to try and spread them out with a good amount of time between each.
Opening lots of different lines of credit in a short period of time can tell lenders that you are panic borrowing and will bring your score down.
Get Your Credit Score Calculated, Then Get It Repaired
If you haven’t already, you should get your credit score calculated so you learn how lenders view you. If you’ve already done that, then it’s possible that Tony’s credit repair can help you today. We use SMART technologies to ensure innovative and progressive leveraging standards.
Get in touch today to see how we can help you.