Monday, November 30th, 2015

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Factors That Affect Your Credit Score

What are the factors used to calculate your credit score? Here are a few of the most important ones.

Credit History

Paying bills on time is generally the single most important contributor to a good credit score. Being late on any bill, for any length of time, is a possible indication of future non-payment of debt and is almost always viewed negatively by lenders. Having accounts that were sent to collection agencies is even worse, though nowhere near as bad as declaring bankruptcy. Paying your bills in a timely and consistent manner contributed to 35 percent of the score.

Outstanding Debt

Next most important was the amount of money you owe and the amount of available credit at your disposal. The assessment of outstanding debt fell into several categories, and included credit cards, car loans, mortgages, home equity lines, and so on. Also given consideration was the total amount of credit available. If a customer has 10 credit cards that each have $10,000 credit limits, that totals $100,000 of available credit. Generally speaking, people who have a lot of credit available tend to use it. This makes them a less attractive credit risk.

New Credit Applications

Careful study has shown that inquiries are an indicator of credit risk. Recent inquiries indicate a person may have outstanding accounts that are not yet part of the credit report. The more inquiries that appear on a borrower’s credit file, the more likely a borrower may not be able to pay his or her bills as agreed.

Length of Credit History

The length of your credit history is important in determining if there is enough information in which to base the credit score. The longer a customer has had credit, particularly if it’s with the same financial institution, the more points they get. The credit report being used to generate a score also has to have at least one account that has been updated within the previous six months, so that there is enough recent information on which to base a score.


Lenders like continuity. A score will be higher if you have been at the same address for 3 years or more. There may be some impact if you have had two addresses in the last 3 years, but probably less if you are a homeowner. As with residency, when it comes to employment continuity is also paramount. Ideally, lenders are looking for someone who has had the same job for a number of years. Such applicants will benefit from the maximum score for this.

Types of Accounts

The mix of credit contributes 10 percent to the credit score. Customers with the best scores have a mix of both revolving credit, such as credit cards, and installment credit, such as mortgages and car loans. Statistically, consumers with a richer variety of experiences are better credit risks. As far as banks and credit card companies are concerned, they know how to handle money.

Copyright ©2008, Young Money Media, LLC

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