A good credit score can open doors for you and allow you to live the lifestyle you desire. Bad credit scores reflect past financial mistakes. Here are the credit score factors behind your number. Improve them and watch your score rise. But your credit score won’t reset overnight, so get started today.
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Want financial doors to swing wide open for you, so you can live your dreams?
If so, pay attention to these credit score factors that represent the number. Your credit score affects many things – from the job you get, to your insurance rates, to how big a mortgage you qualify for and at what rate. Landlords also use it to assess your ability and likelihood to pay rent. If it’s been awhile since you checked your credit score and your credit report (two different things), get this information today. A low credit score translates into much higher borrowing costs and fewer opportunities across the board. Find out how to rebuild your credit here. A high credit score swings those doors wide open for you.
We’ll arm you with the knowledge of how to address the high-impact factors hidden in your credit scores – factors like credit card usage, payment history, and any derogatory marks on your report. But don’t ignore the lower-impact factors. They do make a difference. Complicating things slightly, there’s more than one credit scoring model. And the exact weighting of factors varies between them. But not to worry… no matter the weight given to each, these high-, medium-, and low-impact factors are still tried and true ways to build a good credit score and keep it going. Just don’t expect to move the needle overnight. It’s more of a long game.
High Impact Credit Score Factors
In other words, how much of your total available credit do you use? Most experts suggest keeping your overall credit card usage below 30%. Lower credit usage rates imply that you use credit responsibly without over-relying on it. History shows that those with credit utilization above 30% are more likely to default on payments than those with lower balances. Besides, keeping more credit available allows you flexibility to tap into it should an emergency pop up.
How do you lower your credit utilization? Spend less money, pay down your accounts early, make two payments a month instead of just one. They all affect how big a balance a lender sees at any given time of month (since most of the bureaus get a report just once a month).
Reflects how often you make on-time payments. Obviously, timely payments display your reliability to lenders and creditors. It shows what kind of a risk you are. And indicates whether they should do business with you. Late or missed payments are the kiss of death to your credit score. Find some way to remind yourself to get them paid on time.
These are blemishes on your record – accounts that are in collections, bankruptcies, and foreclosures. Until recently tax liens and civil judgments were listed here too. But now many of those have been removed. Negative remarks (sometimes dubbed “derogs”) are unfortunate reminders of past financial mistakes.
Here are a few ways to get rid of them – though none are easy or quick. All except #5 should be done in writing.
- Dispute errors in your credit report via mail or email.
- Bypass the credit bureau and dispute directly with the business or debt collector that reported you.
- Send a “pay for delete” offer to a creditor, for past due or delinquent
accounts. You offer to pay in full in exchange for removal of derogs.
- Request a “goodwill” deletion. If you already paid, you have less negotiating power. But you can still request a goodwill deletion stating why you were late. Some creditors will do so. It can’t hurt to ask.
- Wait for it to drop off your credit report. With every passing year, it plays a smaller role, though it can stay for up to seven years. In the case of a bankruptcy it stays on your record for 10 years, but its impact may live with you longer than that.
Medium Impact Credit Score Factors
Age of your credit history.
(Not your physical age.) The length of your credit history tells lenders how long you’ve been managing credit. If you’re just starting out, expect it to take six months to a year to gain some traction and build a credit score. Warning: Closing your oldest credit card account could negatively affect your credit score. It in effect shrinks your length of credit history. Put the card away where you won’t use it instead of closing it. The longer the time period you can show you’ve handled credit responsibly, the higher your credit score.
Low Impact Credit Score Factors
Total number of accounts.
As implied, this is the sum total of all the credit cards, loans, mortgages, and other lines of credit you have. Lenders like to see that you’ve managed a mix of accounts responsibly. It shows trust from other lenders. As well as how risky you are to do business with.
Every time you apply for a new line of credit, it shows up on your record. Each one makes a small dent in your credit score temporarily. If too many inquiries occur in a short time, it could suggest you’re desperate for credit or are being turned down by other lenders. Once you’ve made payments on time for a few months, the inquiry impact weakens or disappears.
Soft Credit Inquires vs. Hard Credit Inquiries
Soft inquiries are when you check your own credit. Or when a person or company checks your credit as part of a background check… as in employment background checks or pre-qualified credit card offers. As a matter of fact, you should check and track your credit background. First of all, you’re trying to improve your score and open doors for fulfilling your dreams. How can you do that without a solid point of reference? Furthermore, if there are mistakes on your report or outright fraud against you, wouldn’t you want to know and get it corrected? Don’t wait till you’re ready to buy a house or finance a car to do this.
If you plan to buy a home in the next year, check your credit record today. Repeat in four to six months, as you take aggressive action to improve your score. (This might be a great time for a productive side-hustle with the purpose of reducing debt and saving for a bigger down payment and closing costs.) You’ll be glad you planned ahead to clear the way for a great credit score and a reasonable down payment. Because when you want to make a large purchase and need credit to do so – or you just want to increase your convenience by using a credit card for daily purchases of gas and food – the doors will swing open for you when your credit rating is high. Likewise, those doors will slam shut for you if your credit history is sketchy.