What Affects Your Credit Score?

Your credit score says a lot about you. Not only does it show how responsible you have been with your money (making payments on time, and not defaulting on loans or failing to pay large bills) but it also reflects how much debt you owe.

For many people, their credit score is important. After all, that is how you get a loan for a mortgage or a car, and the loan is based on how “good” your credit score is.

By signing up for any number of credit report companies, you can quickly see what your credit score is, and they will let you know if it is bad, good, or excellent.

But that may leave you still scratching your head. What affects your credit score? It’s actually a variety of things, not just one in particular.

The five top things that affect your credit score:

  1. No credit. This is the number one mistake. Many people think that if they’ve never had a loan, or a credit card, or defaulted on a bill (that was then sent to collections) that they have good credit. That’s wrong, in order to build your credit you need to get a loan or sign up for that credit card, and then show (by making on-time payments) that you are responsible.  New credit affects your credit as well. 
  2. Bad credit. Bad credit can come through a number of different ways; unpaid bills that are sent to collections (and then show up on your credit score), credit cards that you’ve defaulted on, that are over the credit limit, habitually paid late, bank loans or a mortgage payment that is paid late. Those all add up to show negatively on your credit score, bringing it down.
  3. Good credit. On the flip side, good credit is built by not maxing out credit cards, not signing up for too many credit cards, and making on-time payments (on personal bank loans, mortgage payments, and credit card payments).
  4. Age of credit history. The longer that your loans and payments go back the better off your credit score is. This is because it shows that you are responsible for the long-run in making on-time payments. So, think twice before you close that old account and maybe keep it around a little longer.
  5. How often you check your credit score. Many people are not aware that every time you run a credit report to check your credit or make a credit-based application, it affects your score. Those inquiries make up 10% of your credit score, so maybe you should reconsider applying for a new card, or checking your credit. The good news is that this only factors on your score for the last 12 months, and after 24 months are removed completely.

According to FICO, the following things do not affect your credit score (however other lenders and scores may take some of these into account) :

  • Marital status.
  • Age.
  • Race, color, religion, national origin.
  • If you have received public assistance.
  • Your salary.
  • Occupation, employment history, or employer.
  • Your location.
  • Child and/or family support obligations.
  • Any information that is not found in your credit report.
  • If you have participated in a credit counseling program.

So we see that the best way to build good credit is by making on-time payments, keeping accounts for the long-term (don’t open and close accounts frequently) and not maxing out your credit cards. Even if you have bad credit, you can begin making on-time payments and clearing up your debt, and as a result, your credit will rise as your debt diminishes.

Click here to learn more about tracking and building great credit!

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