5 Factors that Effect Your Credit Score

1. Payment History (35%)

Your payment history is the backbone of your credit score, reflecting your financial reliability. It assesses your commitment to honoring financial obligations, considering factors such as:

– Timely Payments:

Punctuality in bill payments underscores your financial responsibility, leaving a positive imprint on your credit score.

– Late Payments Severity:

The seriousness of late payments is measured in intervals—30 days, 60 days, or the ominous 90+ days. The longer the delay, the more severe the consequences for your credit score.

-Collections and Red Flags:

Red flags, like accounts sent to collections, charge-offs, settlements, bankruptcies, and foreclosures, unfurl ominously in lenders’ eyes. Public judgments stand as the most uncertain marks on your financial record.

– Time

The time elapsed since the last negative event and the frequency of missed payments craft the narrative of your credit score. As time passes, past transgressions lose their sting. You do not have to be defined by your past, forever.

2. Amounts Owed (30%):

While timely payments are commendable, the FICO scoring system delves into your credit utilization ratio—an elegant measure of debt relative to available credit limits.

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3. Length of Credit History (15%):

The duration of your credit history plays a significant role. Aged accounts, if free from blemishes, favor your score. Closing your oldest account may could negatively impact your credit score.

– Aging credit accounts

Keeping your credit card accounts open is recommended by personal finance experts for a straightforward reason: the longer an account has been active, the more positively it impacts your credit score. In other words, the age of your credit card account contributes to a higher credit score. The idea is that maintaining an older account demonstrates a longer and more established credit history, which is generally viewed favorably by credit scoring systems. Closing your oldest account may result in a decrease in your overall credit score.

4. New Credit (10%):

Initiating new financial ventures has consequences. Your FICO score notes the number of recent account applications and the timing of your latest credit endeavors.

– The Hard Inquiry Dilemma:

Every new credit application invites a hard inquiry, leaving a mark. Excessive inquiries within a short span may cast shadows on your credit score.

5. Types of Credit in Use (10%):

Diversity in credit types adds a nuanced layer to your creditworthiness. FICO scrutinizes your mix of credit, encompassing credit cards, store accounts, installment loans, and mortgages.

-The Mix Factor:

While a diverse mix is beneficial, it’s a small component of your score. Lack of accounts in every category is no cause for concern, and opening new accounts solely for diversification is unnecessary.

Understanding these components is pivotal in orchestrating a symphony of financial trustworthiness. As you navigate payment history, amounts owed, credit history length, new credit, and credit types, let trust be your guiding star in the vast universe of financial decisions.