Do you want to know how to improve your credit score factors?
Look no further; here, you’ll find everything you need.
There are three principal credit rating agencies in the United States:
They collect and store information from lenders on new loan applications and maintain records of borrowers’ credit histories. They provide this information to FICO (Fair, Isaac Corporation). FICO uses a proprietary algorithm and your credit history data to determine your score.
Credit scores range from 300 (low) to 850 (excellent). A score of 700 or above is generally considered good.
Let’s look at the five factors governing your credit score.
Payment History
This factor is based on your track record of making on-time payments and counts for about 35% of your credit score.
Late payments, bankruptcies, and other negative items can decrease your score.
Credit Utilization
This factor calculates the ratio of your credit card balances – and other revolving credits – to their credit limits and accounts for about 30% of your credit score.
Keeping the ratio below 30% is recommended for a positive impact.
Closing unused credit cards can negatively affect your utilization rate.
Length of Credit History
This factor considers the age of your oldest credit account and the average age of all your accounts. It accounts for about 15% of your credit score.
The longer your credit history, the better it is for your score. For this reason, keeping older credit accounts open is a good idea.
New credit accounts can lower the average age of your credit history.
Types of Credit in Use
This factor considers your mix of credit accounts, such as credit cards, mortgages, and installment loans. It accounts for about 10% of your credit score.
A diverse mix of credit types can positively impact your score.
Having one of each type of credit is unnecessary to get a good score. However, responsibly managing different types of credit demonstrates overall creditworthiness.
New Credit Applications
This factor considers the number of recently opened credit accounts and the number of applications. It accounts for about 10% of your credit score.
Opening several new lines of credit in a short period can lower your score.
Inquiries remain on your credit report for two years but only affect your score for one year.
Shopping around for a single loan type within a short period (e.g., car loans) is usually treated as a single inquiry.
Take Control and Boost Your Credit Score
Now you know how your credit score is determined, look at your existing lines of credit and see where you can improve.
You are entitled to one free copy of your credit report from each of the three rating agencies every 12 months.
Also, your rights as a consumer are protected by law, and you can find out more at the Consumer Financial Protection Bureau
Fairfield Insights LLC 