Four out of 10 Americans have no idea what their credit score is. Does this describe you? If so, it may be time to change that.
One of the first things you have to do is understand how various things affect your credit score. While you may know that filing for bankruptcy is going to affect your score, you may not be aware of the other factors that play a role in your credit rating.
Keep reading to learn more about the factors that impact your credit rating so you can better understand what you should and should not do for good credit.
One of the most important factors that impact your credit score is your payment history. If you have a long history of making payments, it’s great for your credit rating. However, if you miss one or more payments, it could have a negative effect on your credit rating.
The effect of a missed payment can increase as a bill continues to go unpaid. This means that a 90-day late payment is going to be more impactful than one that’s just 30 days late.
In most cases, how much a late payment will affect your credit is dependent on the amount you owe. The good news is, you can easily correct this problem by making your payments on-time, once again.
Another factor that has a significant impact on your credit rating is your credit usage. This is the factor that’s the easiest to change.
The total amount of money that you own in various installment loans, such as student loan debt, auto loans, mortgages, and personal loans, is all part of this equation. However, something that’s even more important is your credit utilization rate.
This refers to the ratio of what you owe compared to your total credit limit on all of your accounts. If you max out all your credit cards or if you don’t pay a portion of your balance, then this is going to negatively impact your credit score because your utilization rate is going to be increased.
Credit History Length
There are several factors related to how long you have had credit (i.e. your credit history) that can impact your rate. Some of these factors include the age of your oldest account if you have recently used your accounts, the age of your newest account, and the average overall age of all your accounts.
If you open a new account, then this may reduce the average age of all your accounts. This may negatively impact your overall credit rating. The good news is, you may be able to offset this negative impact. The best way to do this is by reducing your credit utilization rate and to increase your total credit limits.
Something else that many people don’t realize is that a closed account can remain on your credit report for as much as 10 years. They can also increase the age of your accounts in that period of time. However, once the account has disappeared from your report, it may reduce this factor and as a result, reduce your score. This impact may even be much more significant if the closed account was the oldest one you had.
Protect Your Credit
As you can see, there are several factors that can significantly impact your credit rating. You need to make sure you are doing everything you can to protect your score, as having a good rating is crucial to doing things like buying a house, a car, getting a job, and more. Being informed is the best way to ensure you can do the things you want now and in the future.