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5 key factors that affect your credit score

Your credit score is one of the most important factors lenders take a look at before they decide whether to approve you for a mortgage. It also plays an integral role in the payment terms and interest rate you’ll be approved for. Having a below-average credit score – which is typically between 650 and 699 – can be an indication for lenders to factor in risk-based pricing when you request a quote.

In this article, we’ll take a closer look at five biggest factors that affect your credit score:

Bills payment history

Your payment history makes up 35 percent of your credit score. Paying your bills on time is the largest factor that affects your credit score. Serious issues with payments, such as bankruptcy, charge-offs, tax liens, foreclosure, or repossession will affect your credit score significantly, and can make it nearly impossible to get approval for anything that needs good credit standing.

With this in mind, the best thing you can really do to maintain a good credit score is to make your payments on time every month.

Current amount of debt

30 percent of your credit score will be determined by your current level of debt. A few key factors will be considered by credit scoring calculations when it comes to analyzing your debt, including the amount of overall debt, relation of your loan balances, and credit card balance to credit limit ratio.

A good rule of thumb to follow is to try to reach just 30 percent of your card’s available limit, as having too much debt or high balances has a negative effect on your credit score.

Credit history age

The age of your credit is equivalent to 15 percent of your credit score, factoring in both the average age of all your accounts and the age of your oldest existing account.

An “older” credit age will have a positive impact on your credit score since it indicates that you have earned plenty of experience with handling credit. Keep in mind that closing accounts or opening new ones will lower your average credit age, so avoid opening several new accounts all at once.

Frequency of credit inquiries

An inquiry will be marked on your credit report whenever you submit an application requiring a credit check. Inquiries constitute 10 percent of your entire credit score. Making one or two inquiries won’t have that much of an effect, however, several inquiries within a short span of time can shave off points from your FICO score. Try to limit the amount of your applications in order to maintain your credit score.

Types of credit that appear on your report

Installment loans and revolving accounts are the two basic types of credit accounts. Having these two types of accounts on your report is good for your credit score, as it indicates that you have experience with handling different types of credit.

Only 10 percent of your credit score is made up by types of credit, so not having a certain type of credit like an installment loan won’t put a huge dent on your score.

Looking for the best homes for sale in Longmont, Boulder County, Weld County, or Larimer County? Get in touch with us at The Noel Team today by calling 303.774.9400 or send an email to sjnoel(at)remax(dotted)net.