Finance & Money Management
Top 5 Factors That Determine Your Credit Score V
arious factors impact your credit score, however; it is important to
understand that there are various credit bureaus each of which assign you a score. In general there are five factors that make up your credit score. Most lenders use the traditional FICO score, this stands for Fair Isaac Corporation, which is the software manufacturer that the credit reporting companies use to calculate your score. The major companies in which lenders look at to obtain your credit score include TransUnion, Experian, and EquiFax. Cre- dit bureaus monitor every aspect of your credit such as credit cards, student loans, mortgages, auto loans, and any outstan- ding collections. The first item that the companies use to
determine your score is your payment his- tory. On your credit report lenders can see if you made late payments, missed pay- ments, or ever defaulted on a credit card.
It is important to pay all of your credit ac- counts in a timely manner before they re- port it to the bureau. It is always better to pay the minimum amount rather than pay nothing at all. Never pay a credit card bill with another credit card. The second item that helps determine
your score is the balances on all of your revolving accounts. The bureaus monitor how much credit you have used in ratio to the amount of credit extended to you. The actual number does not matter as much as the ratio does. It is always better to pay your balance in full. Keeping your balan- ces relatively low will increase your cre- dit score over time. View your credit card like it is a bankcard. Only spend money that you have at the time of purchase. Everyone must establish credit at some
point in their life. It is best to open a cre- dit account while you are younger and only use it for absolute emergencies. The
length of all open accounts is taken into account when factoring your score. Ha- ving many new accounts may signal that you are overextending yourself financi- ally. Having multiple open accounts with zero or low balances will increase your credit as well. The number of types of credit you have
may impact your score. It is important not to have multiple loans, credit cards, or collection bills with high balances. The credit bureaus weigh the above catego- ries differently depending on your indivi- dual situation. However, the proportions are as follows: payment history (35 per- cent), amounts owed (30 percent), length of credit history (15 percent), new credit (10 percent) and types of credit used (10 percent). There are many activities that can hurt
your credit score. Even paying other bills late can have a negative impact on your score. Applying for credit cards can have a negative impact if they submit an inquiry to your file. Even having too many credit cards with a zero balance can hurt you. Lenders fear if you were to max out your cards you would not be able to pay them back. On the contrary you
can take steps to im- prove your credit score. Never use more than 25 percent of your av- ailable credit. Consi- der using an automatic payment system for all your bills – just ensure you have enough funds to cover the payments. It is important to check your credit report once a year with each of the bureaus. Source:
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