I have clients from all over the country asking me how much particular items on their credit report are affecting their credit and if the item is removed, then will their credit score rise. It is difficult to provide a precise answer because there are many underlying factors that can make or break your credit! Follow Credit Law Center as we delve into the 5 major factors that impact your credit score!
#1 Payment History
Payment history holds the most weight over your credit score is calculated. Your payment history roughly translates to 35% of your FICO score and could be one of the reasons you aren’t seeing those numbers rise. It is extremely important to establish healthy and beneficial trade lines and to make sure that your debts are monitored and paid in a timely fashion. Therefore, it is more difficult for beginners to start establishing healthy credit because they have not had the time to acquire a positive credit history.
It goes to show that if you have upheld your credit obligations in the past then you will reap the rewards in the future!
#2 Missed Payments
It happens to the best of us, something comes up and we miss a payment! Even a 30-day late payment can hurt your score and if you make frequent late payments then expect your score to start to drop.
Credit scoring models look at:
-Are there late payment appears on your credit report?
– How late are those payments?
-How recent were those late payments?
– How many late payments appear on the report?
Automated payments are one of the best ways to ensure that you don’t make a late payment. Most credit card issuers will offer scheduled payments and the option to either pay in full or pay the minimum payment and will allow you to choose whichever fits your financial needs.
I use automatic payments on my CareCredit account, and it lifts a lot of stress knowing that I don’t need to remember to log into my account every month to set up a withdrawal. It is smart to check your transaction history to make sure that the payment was made successfully!
#3 Credit Utilization
Credit utilization is almost as important as your payment history in terms of credit health and importance. Your credit utilization rate makes up roughly another 30% of your FICO score!
The lower your credit utilization rate, the lower risk you are to lenders. Say you have a $6000 limit on your credit card, and you are using $2000 worth of credit. You are using a little more than 30% of your credit cap and are seen as a lower risk borrower.
Paying off your statements in full is the best way to keep your credit utilization at a healthy percent and can really bump up your credit score!
#4 Length of Credit History
Length of credit history and payment history go hand in hand when it comes to establishing your credit score. Length of credit history only takes up about 15% of your credit score but can be a wonderful way to passively grow or stabilize your report!
Fico will consider:
- Your oldest account held
- Average account age
- Usage of accounts
Becoming an authorizes user is a wonderful way to start building credit history if you are just beginning to start building credit. If you have established credit then keeping those older accounts open and in use will be beneficial if done responsibly.
# 5 New credit
Studies show that people who apply for a lot of credit in a short period of time are riskier borrowers. In other words, they’re more likely to pay a credit obligation 90 days late in the following 24 months.
Some people apply for many credit cards at once to boost their score quickly. This can have negative implications for your credit score as it makes you seem desperate for credit and you will be seen as a high-risk borrower.
When a financial institution pulls your credit score, a record known as an “inquiry” is added to your credit report. Most inquiries stay on your report for 24 months. Certain inquiries, known as “hard” inquiries, have the potential to damage your credit score for 12 months.
Your credit score determines many factors in your life and the more that you understand it, the more fruitful your endeavors will be!
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