There are five major factors that affect your credit score. Let’s briefly take a look at each of them.

1) Payment History

This one is relatively simple. If you make your credit card and loan payments on time, this tends to help your credit score. If you have late payments, your credit score will be lower. History and trends matter. A late payment will always lower your score, but if you have a history of on-time payments, it may not affect your score as much as it would for someone who is consistently late. On the other hand, it may take longer for someone who is typically late to build up their score with on-time payments.

Late payments, collections and charge-offs are also lumped into this category. Payment history accounts for 35% of the credit scoring formula.

2) Credit Utilization

Representing 30% of the formula, your credit utilization refers how much credit you’re using compared to your monthly limits. For example, if you have a credit card balance of $250 and your credit limit is $1000, you’re utilizing 25% of your available credit.

Regardless of whether you pay off your full monthly balance every month, you shouldn’t utilize more than 30% of your credit in any given month. Doing so can lower your score.

3) Length of Credit History

The credit bureaus also consider the length of your credit history, which makes up 15% of your total score. This is measured from the time you open up a credit card or close on a car loan or mortgage. The idea here is that the longer you have your accounts open, the more you can prove or demonstrate that you’ve been responsible with credit. You don’t have to have four credit cards, plus a car loan and a student loan in order to get a mortgage, but a long history of sound financial responsibility can only help.

4) Credit Inquiries

Credit inquiries make up to 10% of your score. If you’re applying for a mortgage, it’s not a good idea to apply for three new credit cards and a car loan at the same time. This is because credit companies want to know that you’re not overextending yourself with credit. For this reason, each hard inquiry made at the time of application may temporarily knock down your score a little bit.

5) Credit Mix

Your mix of credit account for the final 10% of the credit score formula. For creditors, this is all about knowing that you can handle various different types of credit, including both revolving account like credit cards and installment loans like a mortgage, student or personal loans.

If you have any questions or are ready to get prequalified, call us today!