Your credit score affects your life now and in the future in ways you can’t imagine. It determines the interest rates you pay on credit cards and loans, and helps lenders decide whether you’ll even be approved for those cards and loans in the first place.
Your Bill Payment History
Your bill payment history makes up 35% of your credit score. In fact, how consistently you pay your bills affects your credit score more than any other factor. Serious payment issues, such as overdue debts, court collections, bankruptcies, repossessions, tax liens, or judicial foreclosures can devastate your credit score, making it nearly impossible to get approved for anything that requires good credit.
Your Debt Level Matters
Your debt level accounts for 30% of your credit score. Credit scoring models, like FICO Score, take into account a few key factors related to your debt. The total amount of debt you carry, your credit card balances compared to your credit limits (known as credit utilization), and the ratio of your loan balances to the original loan amounts.
Your Credit History Age
What is the age of your oldest credit account? The age of your credit accounts makes up 15% of your credit score and considers the age of your oldest account and the average age of all your accounts. Having a “longer” credit “age” is better for your credit score because it shows that you have a lot of experience managing credit. Opening new accounts or closing existing accounts can lower your average credit age. For this reason, it’s usually not a good idea to open several new accounts at once.
Types of Credit in Your Report
There are two main types of credit accounts: revolving accounts and installment loans. Having both types of accounts in your credit report is better for your credit score because it indicates that you have experience managing different types of credit.
Number of Credit Inquiries
Whenever you apply for something that requires a credit check, an inquiry is placed in your credit report showing that you have submitted a credit-based application. Inquiries make up 10% of your credit score. One or two inquiries won’t affect much, but many inquiries, especially within a short time frame can cost you several points on your FICO score. Keep your applications to a minimum to maintain your credit score.
Factors That Don’t Affect Your Credit Score
There are some factors that are commonly believed to affect your credit score, but they do not – at least not directly. Information like income, bank balances, and employment status can affect your ability to get approved, but they don’t actually factor into the algorithm that calculates your credit score. Age, marital status, and the use of debit or prepaid cards also do not affect your credit score.
Source: https://www.thebalancemoney.com/factors-affecting-credit-score-960527
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