Significant Factors that Determine your Credit Score
BY READERS DIGEST
27th Jul 2020 Managing your Money
Most lenders use certain numerical expressions to determine your creditworthiness. The numbers range from 300-850 and are derived from a critical analysis of your credit report. The final credit score is a determinant of many factors, and you need to find the best strategies to boost your credit score.
Best way to improve your credit score include:
- Check your credit score regularly-you need to ensure that you credit score is correct by regularly checking it. If you find any errors on the report ensure you report it as soon as possible.
- Lower your credit utilization-the percentage of the credit limit you are using needs to be at its minimal.
- Pay on time-the worst enemy to a positive credit score is late payments if you want to be on the safe hands ensure you pay your bills on time.
Those are some of the strategies to improve your credit score. To read the complete article click here: https://bestconsolidationloans.com/blog/boost-your-credit-score.html
What are the factors that determine your credit score?
Your payment history
The payment history plays a significant role in determining the credit score as it accounts for an average of 35% of your score. Constant late payment history can negatively impact your credit score in a significant way. If you are planning to loan a certain amount of money in the future ensure your loan payment history is great.
Most potential lenders need the assurance that you will repay the money together with the accrued interests in time. The primary accounts that are considered in the determination of your payment history include:
- Mortgage loans
- Installment loans
- Credit cards
- Retail accounts
- Finance accounts
Credit utilization
You can build a negative or positive credit score by merely using your credit cards. For instance, if your credit card utilization is too high, it will harm your credit score.
Credit utilization means the number of available credit limits that you are using and accounts for an average of 30% of your score. If your credit utilization rate is too high, your credit score is low and most lenders will be reluctant to lend you finances.
Credit history length
The length of credit history means the life span of specific credit. If your account has been active for an extended period, it plays a positive impact on your credit score. In the calculation of the algorithms, the lenders consider the age of accounts. The credit history length accounts for an average of 15% of your credit score.
Credit mix
Most consumers have more than one loan, and lenders need to consider all the types of loan accounts to determine the credit score. The primary examples of credits include; student loans, mortgages, personal loans, and automobile loans.
Major credit scoring platforms such as FICO review your different accounts and evaluate your loan management and discipline. Depending on the credit history, the lender can determine your credit score, which accounts for 10% of the total credit score.
New credit
Before lenders consider extending a loan, they will consider if you have recently opened new credit accounts. If you have numerous credit accounts, it indicates that you might not be in a position to repay all the lenders in time. Thus having several accounts harms your credit score, especially if your payment history is not appealing.
New credit accounts for an average of 10% of your credit score. Although it does not significantly impact your credit score, it is essential to be cautious to ensure you don't negatively impact your credit ratings with potential lenders.
Lastly, maintaining a good credit score is very important. Many lenders are reluctant to lend finances to people who have a questionable scoring also some job ventures review your credit history to determine your credibility in terms of funds.
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