Credit score is one thing that can be affected by so many things, expected and unexpected. Credit literally controls your life and what you can and can’t accomplish based on your score. And while you probably have a general idea of what your credit score means, some things that affect your credit score may surprise you. So that surprise is limited to a little learning and not a slap in the face the next time you apply for a loan or new credit card, here are the main factors that affect your score and some surprising things that can impact it as well.
The main factors that go into how your credit score is calculated are:
- Payment History
- Amount of debt, also known as your credit utilization ratio
- Age of credit accounts also referred to as credit history
- Mix of credit accounts
- New credit inquiries
The ability to pay your bills on time is crucial to your credit score, accounting for almost 35% of your credit score. VantageScore and FICO are the main scoring models, recording all your payments, late or on-time. Creditors all report your payment activities to the major credit bureaus, typically every 30 days.
A single missed payment won’t affect your score however repeated missed payments, or delinquencies, will result in lowering your credit. This includes bills like Credit card bills, Student loans, Mortgage loans, Car loans, etc.
Amount of Debt
For many people, debt seems to accumulate over time. Either they are not getting the raise they were looking for, or they have an unfortunate pile up of medical bills. Regardless of the reason, debt will kill your credit, accounting for 30% of your credit score. It’s best to keep your credit utilization to 30% or less, paying it off as soon as possible.
The reason debt has such a large impact on what affects a credit score is that it identifies whether or not you’re a high-risk borrower. Naturally, someone carrying less debt is a less risky borrower than someone who’s using quite a bit of his/her credit limit(s).
Credit Age or Credit History
Credit age affects around 15% of your overall score. When it comes to the age of your credit accounts, there are two main factors that a lenders looks at:
- The first is the age of your oldest account.
- The second is the average age of your combined accounts – Calculated by adding up the age of each account and dividing it by the number of accounts you have.
Having credit age is very important, which means it’s imperative to never close out your older accounts unless there’s a good need to do so.
Credit mix accounts for 10% of your score. Revolving debt such as credit cards, or installment debt like loans are two types of credit accounts. You should have a good mix of the both of them.
The two types of credit inquiries as soft inquiries and hard inquiries. A soft inquiry does not show up on your credit report. A hard inquiry does show up on your credit report and can lower your score in increments for some time before your credit begins to climb again. Hard inquiries typically happen when someone runs your credit, either for opening a new credit line, financing something, or applying for a new credit card.
Surprising Things that Affect Your Credit Score
- Reporting Errors
- Parking Tickets
- Utility Bills
- Medical Bills
- Delinquent Child Support
- Paying Off a Loan
- Closing a Credit Card
- Applying for an Insurance Policy
- Getting a new Cellphone Plan
- Not Paying Your Taxes
- Forgetting to Pay Your Rent
- That Old Gym Membership
- Bank Overdrafts
- Requesting a Credit Limit Increase
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