What exactly affects your credit score? The answer is simply that only the credit bureaus know for certain. They actually keep the precise formulation a hidden secret so as to prevent individuals, and so-called credit repair agencies, from manipulating the system. While there is not much precise data avialble, most credit counselors think that they have a pretty good handle on the factors that creditors value most.
History of Payment – Probably the biggest and most important factor is your payment history. This is how often you make timely payments to your debt, and whether or not you have any late payments. A late payment, according to the credit bureaus, is any payment that is paid more than thirty days past the supposed payment date. Even a single late payment can stay on your record for a very long time and hurt your credit.
Amount You Owe – This is another biggie. Creditors want to see if you are living within your means, and this means checking how high your balance are compared to your limit. If your balances across the board are eighty or ninety percent of your total limits, this could mean a lower score. However, if your balances are low, say about fifty percent or less than your limits, the credit card companies will look much more favorably on that.
Length of Credit History – It is difficult to get an accurate handle on someone’s credit habits if they have only been using credit for a few months. For this reason, credit bureaus place some value on the length of your credit history. The longer your credit has been established, the higher your credit score. Obviously, the best practice is to establish credit early and use it well throughout your life.
New Accounts – Creditors want to make sure that you are living within your means and using credit responsibly. So it sends up a red flag for them when you open up a bunch of new accounts in a very short period of time. To these companies, this signals that you are perhaps in a bit of financial trouble. While new accounts only make up a small percentage of your overall credit score, you should still keep that in mind and only open up a new credit account when you actually need it. At the same time, however, this should dissuade you from opening a new account, assuming of course that it is totally necessary.
Variety of Credit – Credit card companies also want a fairly spread out sampling of credit types. So, someone who has a mortgage, an auto loan, and a credit card all in good standing is a more preferable customer than someone who simply has 3 credit cards in good standing. This does not mean, however, that you should start opening multiple accounts for the sake of credit. As we looked at before, opening too many accounts in a short period of time can harm your credit.
Public Records – Public records are notices on your credit that you may have had a bit trouble paying things such as a court ordered settlement, taxes, and others. Public records on your credit report are bad. You should try and stay away from public records as much as possible and perhaps make those the first things you pay off when you come into some cash.
