What Affects Your Credit Score?

Overview

There are many factors that can affect your credit score. The exact method that creditors use to determine credit scores is not fully known. However, the following aspects of your credit report are almost always considered by all credit company scoring models.

Payment Habits

Whether or not you pay your bills on time affects your credit score. If you don't pay on time or in full, this will obviously reflect negatively on your credit score. However, if you pay your bills at the proper time in the proper amount, your credit score will be positively affected. Of all the aspects of your credit record, your payment habits have the most significant effect on your credit score.

Outstanding Debt

If you have significant outstanding debt, this can also affect your credit score for the worse. Having maxed-out credit cards can have a negative effect on your score. On the other hand, if you always use less than 50 percent of your credit limit, this will have a positive effect on your score. This ratio of the amount of debt you owe to the amount of your available credit, is the second most significant factor in your credit score. The amount of debt you owe in relation to your income can also play a part in the scoring system.

Length of Credit History

The length of time you've had accounts open plays a part in your credit score. For this reason, closing existing accounts can affect your credit score negatively. If you have paid off an account, it will be beneficial for you to leave the account open with a zero balance.

New Accounts

When you open or even just apply for a new credit account, it will affect your credit score negatively. However, it will only have a temporary affect. Applying for more credit implies that you are in need of it. If you are applying for credit because your other accounts are maxed out, it is worrisome to creditors. Therefore, even inquiries for credit can affect your credit score negatively. It is also important to consider carefully before opening new lines of credit, because having too many lines of credit open can damage your credit score.

Types of Credit

The types of credit lines that you have open will also affect your credit score. If you have a mix of different types of accounts it will bring your score up. Rather than just having credit cards, adding auto and mortgage loans to the mix, can be beneficial in improving your credit score. These loans are called installment debt, and credit cards are called revolving debt. The installment debt has a much more favorable effect on your credit score.

What Affects Your Credit Score? by creditdebtconsolidating.com