What Information Impacts Your Credit Score?

Your credit score impacts many different things in your life. In fact, it is probably the single most important number in your financial life. Lenders will base much of their decision on whether or not to lend to you based on this one number. Therefore, the higher your score is, the more likely you are to be approved. While most people understand exactly how important the number is, not many know how it is calculated. Here is a look at what information goes into a credit score.

Payment History

Your payment history and the way you have paid your bills is the single biggest factor in your credit score. This actually makes up about 35% of your entire credit score. Therefore, you should take extra caution in how you pay your bills. If you wait around and always pay your bills late, there is a good chance that your score will be negatively affected. If you skip payments or stop paying bills all together, your score will likely be greatly affected. 

Account Balances

The balances that you put on your credit cards and other accounts plays a large role in your credit score as well. If you rack up huge balances on your cards and always leave them maxed out, your credit will be negatively affected. The credit bureaus like to see you keep to 30% of your credit limit or less. This is considered a reasonable amount of credit card debt and they realize that you can use a credit card without letting it take control of you. If you have too many accounts open, this will not look good either. When you have available credit, you tend to buy things with it. 

Length of Credit

In determining your credit score, the credit bureaus will look at how long you've had your accounts as well. If you have been doing business with a credit card company for a number of years with no problems, this will reflect well on you. If all of your accounts have recently been opened, it will not help your credit score. They want to see a long credit history with no problems along the way.

Types of Accounts

The credit bureaus also like to see that you have a nice mix of credit. If you have all of the same type of account, it will reflect negatively on you. A good credit risk will have a mortgage, auto loans, student loans, credit cards, or other types of loans. If you had only 6 credit cards, they will not think as highly of you. Having multiple types of credit proves that you can handle your money well.

Credit Inquiries

If you try to get credit all the time, it will negatively affect you. The system does not punish you for shopping around for the best rate on your mortgage. However, if you're applying for loans every few months when you need money, it will downgrade your score. 


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