Knowing the impact different factors have on your credit score and what they mean is key to understanding how your credit score is calculated!
TOTAL ACCOUNTS: This refers to the numbers of credit cards, loans, mortgages, and other lines of credit available to you.
Lenders like to see that you have experience managing your credit in different types of accounts. It shows them that a variety of lenders trust you with credit.
HARD INQUIRIES: Hard inquiries usually occur when you apply for a line of credit such as a credit card, loan, mortgage…but can also occur when you fill out a form for an apartment rental.
Many of these forms will indicate that your credit score will be checked. If not, it's always a good thing to ask so there are no surprises.
Hard inquiries can lower your score slightly, but if you continue to make your payments on time and continue to maintain a low credit utilization, the impact of that hard inquiry should go away or diminish.
It’s important to limit hard inquiries to only when they are absolutely necessary.
Age of Credit History: This shows the amount of experience you have when it comes to managing your credit.
While your credit management experience isn’t the most important factor to calculate your score, it’s still something that is taken into consideration.
Closing older credit accounts can erase years of responsible credit history.
The longer you manage your credit responsibly, the more you can show your creditworthiness to lenders.
Credit Card Utilization: This refers to how much of your available credit you’re using at any given time.
It’s determined by dividing your total credit card balances by your total credit card limits.
Financial experts recommend keeping your overall credit card utilization under 30%.
Lower credit utilization suggests that you can:
1. Use credit responsibly and…
2. Don’t rely heavily on credit to meet your financial obligations.
In addition, keeping your credit card balances low means you have available credit should an unexpected emergency arise.
PAYMENT HISTORY: This is represented as a percentage showing how often you’ve made your payment on time.
Paying your bills on (or before) the due date shows lenders and creditors that you’re responsible and reliable… and more likely to pay back your debts.
Managing your credit wisely and meeting your financial obligations on time are what will get and keep your credit score in tip-top shape!
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