A credit score is a number that talks about how financially trustworthy you are. Every time you apply for a loan, request for a lowered interest rate, or ask for a credit extension, banks and other financial institutions check your credit score and then accept or deny your request. The higher your score, the better it is considered.
Here are some common factors that affect your credit score:
Past payments
Your past payments are the first factor that affects your credit score. When it comes to payment histories, they make up to 35% of your credit score. Credit score service providers check for factors such as how often you miss payments, how frequently you miss paying timely, and how many creditors you don’t pay. The higher these figures are, the more your credit score will drop.
Availability of credit balance
Another of the prevalent factors that affect your credit score is your availability of credit balance. It is also termed as credit utilization. If you have the habit of owning multiple credit cards and always max out these cards, you are considered a risky debtor. Utilizing your credit card balances to the minimal amount possible to maintain a good credit score is advisable.
Credit history timeline
Another factor that determines your credit score is your credit history timeline. The number of years you have maintained a credit account is also one of the common factors that affect credit score. If you have had a particular credit card for several years, it gives these credit score service providers more information about your repayment histories and debt details and improves your score. Hence, it is beneficial to have long-standing accounts.
The number of new credit accounts opened
If you are a person who applies for credit cards or loans on the spur of the moment without worrying about your debt status and ability to repay, this is noticed by credit score providers. A person who opts for multiple credit cards and opens a lot of loan accounts in a short period is considered risky, and their credit score is affected.
Credit portfolio
When you decide to borrow money or ask for credit, it is always better to have a variety of credit portfolios. Owning a credit card, having an auto loan, and managing other installments informs the credit report providers that you can handle credit responsibly. It also increases your credit score. People with no credit cards can have a lower score than those who have credit cards and repay them every month.
Make a note of all these common factors that affect credit score and do your part to increase your score. The better your credit score is, the better you will be treated by financial institutions, such as banks and unions.