Credit Score Definition

What Affects Your Credit Score?

Written by Brian James

What affects your credit score? A credit score is basically like a test given and you score on that particular test, you get positive points for everything you do well and points taken away when the performance is not good. Most credit scores range from 300 to 900 points and higher the score it’s better for your credit rating. There are a lot of factors that affect the credit score either positively or negatively.

What affects your credit score in a positive way?

  • You should pay your bills on time.
  • Always keep a high credit line to debt ratio.
  • Don’t carry a balance if possible.
  • People who are employed seem to pay their utility bills on time.

What affects your credit score in a negative way?

  • If you are consistently late in paying your bills that will really hurt your credit card score, so you need to make sure that you pay bills on time.
  • If you ignore the payments and not paying through credit cards, a time will come when your credit card will be charged off.  
  • Defaulting a loan is also similar to credit card charged off meaning that you have not fulfilled the responsibility of your loan contract and this affects your credit score.
  • Finally what affects your credit score in a negative manner is that when you do not pay bills on time the court has to get involved to make the final decision.
  • The credit card containing high credit balances increases your credit balances and decreases the credit score.
  • A credit card containing balance when it is closed, the credit score drops to $0 while balance remains in it.

Other Factors affecting your credit score:

1.    Payment History- largest factor of the credit score: It is the most important factor to a potential lender i.e. whether or not you pay your bills in full or on time all depends on the recent history of payment. If your recent payment history is good or (bad) it all affects the credit score.

2.    Amount borrowed compared to available credit: You should not have a loan of greater than 50 percentage of available balance for any lender. As an ideal situation, you should borrow less than 33 percentages on the balance available with you. So it is better to owe small amounts on different cards than to use one card up to its limit.

3.    Duration of your credit history: You should try to improve your credit score by letting your account open for at least 7 years. If your credit history will be longer, your credit ratings will also be higher.

4.    Make Inquiries: If you apply a number of times for the credit cards or loans, the more credit card inquiries will be shown on the credit report. More inquiries shows that either you are struggling financially or have a lot of debt.

5.    Debt Type: The installment debt like auto loan is more preferable than credit card debts.

Finally, what affects your credit score simply means that if you want to raise your credit score then your credit score should also be high.

About the author

Brian James

US Financial specialist with a financial Master degree. Speaking about credit scores range in US, credit cards and more.

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