Do you know how your credit score is calculated? Maybe you want to impact your credit rating, or maybe you just want to start out on the right financial path. Recognizing and understanding these five credit score factors can help you make the right choices when managing your credit.
Lenders like to see borrowers that make payments in full and on time. Payments on the following affect your credit history:
A second important factor is the amount of money you owe compared to your overall limits and type of credit accounts. High balances on several accounts may indicate future problems making payments. Lenders also compare your loan balances to the original amount borrowed. The more you've paid off, the better.
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A long credit history showing regular payments helps your credit score.
A credit report that includes a lot of recent inquiries and new accounts in a short time period suggests to lenders that you might be a credit seeker and high-risk borrower, especially if you have a short credit history. This lowers your credit score and the likelihood of getting new credit.
Another factor includes the types of credit you hold. This is more important for newer borrowers because there is less information to calculate the other credit score factors. Making payments on credit cards, car loans and student loans in full and on time can help improve your score.
These five credit score factors make up your credit score, but how they're weighted changes depending on your overall credit picture. Though you can see what information increases or decreases your credit score, it's hard to calculate your score because of this.