Factors That Affect Your Credit Score

A credit score is fundamental for getting credit cards, personal loans, car loans, mortgages, and other forms of credit. The higher the credit score is, the easier it is for you to access credit at favourable terms.

That said, various factors affect your credit score. If your score has taken a hit for any reason, multiple strategies can help improve it. However, you first need to understand how your score adds up. Here are the different factors that affect your credit score.

Payment History

Payment history is one of the most critical factors affecting your score. A single missed payment can significantly negatively impact your overall credit standing. When making decisions, a lender will closely look at your repayment history to ensure that you pay your debt on time. Payment history constitutes 35% of your FICO credit score.

Credit Balance

Your credit utilization ratio is the next big factor affecting your credit score. Your credit utilization ratio is the amount of credit you have used against the available limit. Using more than 30% of your available credit is usually considered a negative sign for lenders.

So, pay your balance off quickly and ensure your utilization ratio is always under the prescribed figure. Another essential thing to note is that your credit balance accounts for 30% of your credit score.

Length of History

How long you’ve held your credit accounts is also important in determining your credit score. It accounts for 15% of your FICO. Credit history length can include factors like:

· Age of your oldest credit account.

· Age of your newest credit account.

· The combined average age of all your accounts.

The longer you’ve held credit accounts, the better your credit score is because it shows that you can manage your finances properly and have demonstrated responsible behaviour in paying off your credit accounts.

Credit Portfolio

Credit portfolio is another important determining factor, accounting for 10% of your FICO score. People with a good mix of credit accounts such as car loans, mortgages, and other credit products are viewed favourably because they can manage a diverse range of credit accounts effectively.

New Credit

New credit accounts for 10% of your credit score. The number of hard inquiries you’ve made and how many accounts you have opened recently also play an important role in determining your credit score. Too many accounts or inquiries can lower your score.

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