Credit scores can be a complicated topic to understand. Luckily, this blog is here to break it down for you in an easy-to-read format.
If you're looking for credit score advice or tips about how to improve your score, then read on. This blog post will guide you through the components of what a credit score included is and how you can raise yours!
Top 5 Fundamentals That Affect Your Credit Score
Payment history (35% of score): It is no secret that the credit score system in America has been broken for years. The current system favors those with high incomes and low debt while disadvantaging those who live paycheck to paycheck and are unable to pay off their balances each month due to high-interest rates on their revolving accounts. Credit scores have become an economic indicator of class, as the majority of Americans are not able to afford a home or car because they cannot maintain good credit scores over time.
Amounts owed (30%): The amount of debt you have affects your credit score. If I owe $5,000 in student loans and another $1,500 on my car loan the total is only $6,500 which sounds like a reasonable amount for someone with a good job. But when I take out a mortgage or open up a new credit card it will show up as an inquiry to the credit bureau so that increases my debt to over 7% of the available limit ratio (AOLR). So when your credit score is calculated then the Amounts owed are an important factor.
Length of credit history (15%): Credit scores are an important aspect of personal finance, and length of credit history is a factor that can affect your score. One way to increase the length of your credit history is by opening new accounts with companies you already do business with, such as car insurance providers or utility companies.
Credit mix (10%): Your credit mix is the variety of types of accounts on your credit report. It can include installment loans like mortgages, car payments, and student loans; revolving debt like a credit card or home equity loan; and savings balances. The more you have in each category, the better your score will be.
For example, if you have four mortgage loans but no revolving debt — that's good for your score. If you only have one type of account with high balances — say a few car payments totaling $10,000 — that could hurt your score because it makes up most of what's reported to the bureaus about you.
New credit (10%): A credit score is an important number in determining one's ability to obtain loans, find employment and rent an apartment. It also affects the interest rate that people are charged when they're applying for a loan or seeking a job. The higher your credit score, the better your chances of getting approved for those things you need most and avoiding high interest rates.
A credit score is a number that represents your creditworthiness and how likely you are to repay debt. Your credit history, types of accounts, payment habits, outstanding debt balance, and length of time with the same lender all factor into your score.
Your FICO Score measures the likelihood that you'll default on a loan based on these factors.
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