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We’ve all had our credit scores checked when applying for a loan, but your credit score can help save some serious money in more ways than you might know. Landlords run a credit report for potential renters and use it as a tool to determine who will be their next tenant. Internet and cellphone providers often use credit scores to determine who is eligible to sign up for the best plans. Insurance companies factor in credit scores when deciding what your monthly premium will be.
Having a high VantageScore score or FICO score could be a deciding factor in whether you can afford your monthly expenses or drown in them. Understanding what affects your credit score can substantially improve your financial security. It, quite literally, pays to take the steps necessary to improve your credit score.
What Factors Affect My Credit Score?
1) Payment history
Both VantageScore and FICO agree that payment history is the most important factor in determining credit scores. Your credit score will drop if you constantly miss your payment deadline or only partially pay the total amount owed. Furthermore, your score will continue to decline the longer you miss these deadlines. Don’t let this discourage you. You can rebuild your credit score over time by simply paying your credit card on time and in full.
2) Credit usage
Credit utilization is the total amount of money you owe divided by the total amount of credit you’re allowed to use. So, if you have a total credit limit of $10,000, and your current balance is $1,000, your credit usage percentage is 10%. Many experts advise keeping this percentage under 30%. Keep in mind that your score can be affected if the percentage rises above 30% at any point during your billing cycle. If this occurs, you may need to pay your credit card more frequently to prevent your credit usage from affecting your credit score.
3) Credit history length of time
Although this factor does not affect your credit score as much as the prior two factors, the length of time you have been using credit still plays a role. For example, the longer you’ve had your credit card, the better it looks on your credit score.
4) Different types of credit
It’s beneficial to your FICO or VantageScore credit score to have a mix of different credit because it shows lenders that you can responsibly manage multiple different accounts, especially if you are able to stay on top of all payments.
5) Newly opened credit lines
Have you noticed your credit score slightly dropping soon after you’ve opened a new credit card? The scoring system assumes that you may be experiencing cash flow issues if you suddenly open a new credit card. However, the credit score drop is only temporary. Once you make your first payment on the new card, your score will eventually increase again.
It never hurts to keep an eye on your credit score. If you have a good credit score, you can use it as leverage to score you a lower interest rate the next time you apply for a loan. If your score needs some work, the good news is that credit scores are dynamic and change depending on your financial responsibility. Knowing these top five factors that affect your credit score means that you now have the tools you need. Contact a credit solution company today to get started on watching your credit score increase.