The Biggest Factors that Affect Your Credit Score
One study conducted last year showed that nearly 40% of Americans don’t know their credit score. While you might not need to know your credit score unless you’re applying for a loan of some sort, it’s nice to know your score just to have a gauge of your overall financial health.
Accessing your credit report is a great way to check other things aside from loan payments. It’ll show you other things, such as other collections you owe to state or local governments. Getting a free credit report is easy (we’ll update yours every two weeks!), but there’s more to know than just what your credit score is.
If you’re trying to improve your score, you’ll also want to understand which factors affect your credit score the most. From missed payments and account history, here are five of the things that affect your credit score the most.
What Affects Your Credit Score the Most?
1. Payment History
The biggest factor that affects your credit score is your payment history. Lenders want to see that you’re able to make payments on time when you’ve taken out previous loans. In fact, payment history is so important that it accounts for over a third of your credit score. Every 30 days, creditors report payment history to the credit bureaus. And, while one missed payment is usually enough to severely lower your credit score, it’s important to ensure you stay on top of your payments or contact your lender to talk about lowering them if needed.
2. Amount Owed
After your payment history, the amount of debt you owe in total is the next biggest factor that affects your credit score. It usually accounts for about a third of your credit score. If you are consistent with your payments but owe large amounts on a variety of different accounts, this could indicate that you’re a high-risk borrower. This is where credit utilization comes into play. It’s best to keep your debt low, in general, but it’s also important to avoid using a high percentage of your total available credit. Keep it under at least 30% per month to keep your credit score up.
3. Length of Credit History
When calculating your credit score, the length of your credit history is a pretty big factor. However, this isn’t to say that someone with a short credit history can’t have a high credit score. When calculating this part of your credit score, they’ll often look at the age of your oldest account, the age of your newest account, and the average age of all of your accounts. This is why it’s suggested that you don’t close out old lines of credit when you’re trying to improve your credit score.
4. Credit Mix
It’s not necessary to have every different kind of credit available. After all, not everybody is going to need an auto loan, installment loan, or even a retail account. And, while this isn’t as important of a factor as something such as payment history or amount owed, it can help to diversify your credit mix if you’re really interested in improving your credit score. Avoid hard inquiries, but where it’s feasible, look into a nice mix of revolving accounts (credit cards, retail store cards, etc.) and installment accounts (student loans, mortgage loans, and auto loans).
5. Hard Credit Inquiries
Similar to credit mix, hard credit inquiries are definitely a big factor in determining your credit score, but they’re not quite as big as a bunch of missed payments or thousands owed on various accounts. A hard inquiry is when a financial institution such as a credit card company or a lender checks your credit as part of an accompanying credit application. Most mortgage loan applications, credit card applications, and personal loan applications will require that the company perform a hard inquiry, and if you have too many of these in a short period of time, it can affect your credit score as it looks like you’re desperate for cash.
How to Check Your Credit Score
Want to learn how to check your credit score? Doing so will give you a good idea of your current financial health. Download Float. It allows you to access a frequently updated credit score and even share it with others.
We’re the first app that allows you to control how much information your share. We’re making it fun and easy to learn where your friends and family are at in their own credit journey. As you begin to learn how to increase your credit score by paying attention to the above factors, you’ll be able to share your wins with others.