What are the factors affecting the credit score?

Figuring out your credit score can be overwhelming. Trust us when we say you don’t need a degree specializing in it either.

Credit scores usually range from 300 to 850. Lenders use these scores to see how likely you are to pay back your debts. If they see you have an excellent credit score, they’ll feel confident in giving you a loan.

Your credit score is affected by five known factors. It changes according to the change of your financial profile. Knowing the factors that influence it will help find the opportunities to gradually improve it. If you still find it too difficult, you can avail the help of credit repair services.

What Factors Affect Your Credit Score?

  1. Payment History

Of all the factors, payment history holds the highest importance in credit scoring. A missed payment can have a bad effect on your score. A huge deal of trust is needed in transactions and loans. The lenders want to know that you can be trusted to pay them back on time.

For example, if you lent money to a friend you trust, you’re doing this because you know they can pay on time or at all. You also know that they’ve paid on time previously.

Your payment history makes up 35% of your total credit score.

A significant amount of lenders utilize the FICO® Score. It’s like a summary of your credit report. It tells you the amount of time you’ve been using credit and how much you have. It also shows how much credit you’ve used and if you paid them on time.

  1. Amounts Owed

The second most important factor is how much credit you use. This is represented by your credit utilization ratio. It looks at the amount of available credit you’re using. This gives people the impression of how reliant you can be on non-cash funds.

A credit utilization ratio is usually computed when you divide your total outstanding balance and divide it by your credit limit. The result of which should be multiplied by 100 to get the percentage of the amount.

Did you know that going over 30% of your credit utilization is a negative for creditors? Additionally, 30% of your FICO® Score is taken up by your credit utilization.

So if you’re hoping to get that 850 credit score, it’s best to take care of the two factors mentioned above.

  1. Credit History Length

How long has it been since you got your credit accounts? 15% of your FICO® Score consists of that. This will include your oldest account, your newest, and the average age of all of them. It’s generally believed that the longer your credit history, the better your credit scores.

  1. Credit Mix

Credit mix makes up 10% of your FICO® Score. It refers to the various credit accounts you have. This includes car loans, student loans, mortgages, and other credit products.

The models used for credit scoring consider the different types of accounts you have. It reflects your abilities to manage a wide variety of credit products. 

This doesn’t mean that you need to open multiple accounts to increase your score. It’s better to have a small number of accounts that you can manage rather than jeopardize your score. After all, this factor only makes up 10% of your total score.

A bad credit score can affect your relationship with your lenders and even those that you haven’t met yet. It will remain embedded into your record. However, if you do make this mistake, you can opt to avail yourself of cheap credit repair services. This will potentially help you recover your reputation and get back on track.

  1. New Credit

The final 10% of your FICO® Score comes from this category. This refers to the number of credit accounts you’ve just opened. When you apply for credit, lenders make some hard inquiries. The number of hard inquiries made also counts under this category.

We advise taking caution in this regard as well. Too many accounts or even inquiries can show increased risk. This can potentially hurt your credit score. But don’t worry because you can always find affordable credit repair services.

What Can Hurt Your Credit Scores?

We’ve discussed how there are core parts of your credit file that greatly impact your credit score. Those can be either positive or negative but under this section, let’s talk about what can hurt your score.

  1. Missing Payments

We talked about how your payment history makes up 35% of your credit score. Having late payments takes a huge toll on that. Were you late for 30 days or 60 days? If it’s even longer than that, then the damage done to your score could be serious.

You can ask credit repair affiliates for advice on how to fix your score.

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  1. Going Over 30% of Your Available Credit

Just because they gave you a huge amount of credit doesn’t mean you need to use all of it. If anything, using such a big percentage of it can raise alarms. Lenders prefer to see that you’re using only below 30% of your credit.

If you use under 10%, that’s even better. This doesn’t mean that they don’t want you to avoid using any credit at all. They’d still like to see you manage your credit accounts responsibly.

  1. Numerous Credit Applications

Your credit file records any hard inquiries done by lenders. These stay in your file for two years and may reduce your score slightly. The number of hard inquiries you have serves as a gauge to lenders to approximate the amount of new credit you’re requesting.

Therefore, if the lenders make too many inquiries, it can signify that you’re in a bad financial situation. This may also mean that you’re being denied new credit. In this case, it’s best to take care and seek advice from credit repair professionals.

  1. Defaulting on Your Loans and Accounts

Defaulting refers to your failure to pay for your loans as arranged between you and your lender. 

For example, after 30 days of not being able to pay, it will be recorded on your credit score. However, if you go beyond 90 days, your account will be moved to default status.

These are negative account information that can be found on your credit report. Other negative information is foreclosure, bankruptcy, and repossession. These are sizable dents in your credit score that can last for a decade.

In such cases, we advise approaching top rated credit repair services.

How Much Does Credit Repair Cost?

Credit repair services aim to help you build your credit score. This is by disputing outdated or incorrect information on your credit reports. They follow up on those results and monitor the reports to ensure that the same errors no longer appear.

Credit repair may cost $100 or more a month. The process can take several months and there’s no guarantee of success. But trying to improve it with professional help is better than being a sitting duck.

There may also be more affordable credit repair services but be warned. The credit repair industry has its fair share of scammers. The industry is indeed legal but please ensure that the services you avail truly intend to help you.

Conclusion

The factors that affect your credit score sound simpler than what we initially thought them to be. Payment history, for example, was an obvious factor. After all, who would lend money to someone with questionable history?

They also factor in the amounts of credit you borrow. If it goes beyond 30%, it alarms the lenders. Borrowing the amount at full capacity doesn’t get you a better credit score. Having a long history of credit and having a variety of types of credit is also a plus.

Requesting new credit accounts may also increase your credit score. However, this doesn’t mean you should open a new account for the sake of your score. If you’re unable to pay, then you’ll lose more than you’ll gain.

If you need advice on raising your score, feel free to avail a credit repair service. These professionals will help you strategize on the best approach to get an excellent credit score!