5 Factors That Affect Your Credit

Having a good credit score can be beneficial. It can help you purchase items when you don't have sufficient funds. This is particularly useful for purchases that you need or want. Conversely, a poor credit score can significantly inhibit these opportunities.

A good credit score is advantageous in situations like purchasing your first home, applying for an auto loan or even leasing your first apartment. Lenders want to see how responsible applicants are with their finances, and a credit report gives a clear picture of that.

Your credit score takes into account your current and past debts and your payment history. It helps determine whether you’re approved for a loan and what interest rate you will be charged. The higher your credit score, the better your credit rating, and the lower your interest rate could be.

1. Payment History

Simply paying your bills on time can mean the difference between an average and exceptional credit score.

2. Debt Amount

The amount you owe is compared to your credit limit, on an individual account basis as well as an overall basis. Pay attention to your balances as they relate to your credit limits, especially on revolving debt.

3. Debt Type

There are two main categories of debt – installment debt and revolving debt.

• Installment debt is a loan that is repaid by the borrower over a set period of time in regular (usually monthly) payments that include principal and interest (i.e. auto loan or mortgage).
• Revolving debt is money owed to a creditor who sets your monthly payments based on your current balance. Credit cards are an example of revolving debt.

Note: A good credit mix includes both types of debt.

4. Length of Credit History

Keeping your old accounts open and active may help to show a more established credit history. Opening and closing credit accounts frequently could hurt your credit score.

5. Credit Inquiries and New Debt

Every time you apply for credit, an inquiry will appear on your credit report. Excessively shopping for credit can create many inquiries in a short period of time which can hurt your score. (Most often, when shopping for a mortgage, multiple mortgage-related inquiries within a short timeframe will be counted as one inquiry.)

Wondering what’s considered a good credit score? Credit scores range from 300 to 850. Credit.org says anything above 680 is considered a “good” score.