Banks and other agencies use an individuals credit score to settle on personally significant information such as credit limits, and interest rates on loans; so, your score, between 300-850 is very important. The Fair Isaac Company (FICO) is the benchmark agency in determining credit; it's used by nearly everyone who checks credit scores. The closer your FICO credit score is to 850 the better.
Your credit score is influenced by several factors, the most important of which is paying your bills on time. 35% of your credit score is based on whether or not you pay your bills on time; failure to pay at least the minimum on even one bill will affect your credit negatively. Opening lines of credit and paying them off in full can positively affect this aspect of your credit score, while missing payments or allowing accounts to become delinquent will negatively affect your score.
The second most significant part of your credit score is the disparity between your balance owed on accounts and your total credit limit. Several factors go toward determining this percentage of your score including but not limited to: the types of accounts on which you carry a balance, the number of accounts you owe debts on, and the total of your balance across all of your accounts. Lenders will be unimpressed with individuals who owe more than 50% of their credit limit to a particular company. People who have multiple credit cards that carry high balances will have an even lower credit score.
The third factor that influences your credit score is the 15% that is attributed to the length of time that you have been using your credit. Older individuals may have better credit simply because their credit history is so much longer. Because credit history is important to your total credit score, it is not necessary to cancel accounts you no longer use. Young people may be surprised that their credit score is low despite having few or no credit problems to speak of, but this is due to their short credit history.
The final 20% of your credit score is split evenly between the number of new credit applications and the diversity of accounts already possessed. 10% of a person's score is attributed to each of these factors. An individual should, therefore, be wary of opening too many accounts at one time, and open many different types of accounts over time. For example, a major credit card, a retail credit card, and a loan paid in monthly installments are all likely to have a positive affect on your credit score if opened over an extended phase of time.
Individuals who have a hard time understanding the credit score are not alone. A person who remains aware of the influential factors listed here doesn't necessarily need to grasp how the credit score is determined. All you need to remember is to keep on top of your bills, keep your balance low, and slowly open a range of accounts.
Your credit score is influenced by several factors, the most important of which is paying your bills on time. 35% of your credit score is based on whether or not you pay your bills on time; failure to pay at least the minimum on even one bill will affect your credit negatively. Opening lines of credit and paying them off in full can positively affect this aspect of your credit score, while missing payments or allowing accounts to become delinquent will negatively affect your score.
The second most significant part of your credit score is the disparity between your balance owed on accounts and your total credit limit. Several factors go toward determining this percentage of your score including but not limited to: the types of accounts on which you carry a balance, the number of accounts you owe debts on, and the total of your balance across all of your accounts. Lenders will be unimpressed with individuals who owe more than 50% of their credit limit to a particular company. People who have multiple credit cards that carry high balances will have an even lower credit score.
The third factor that influences your credit score is the 15% that is attributed to the length of time that you have been using your credit. Older individuals may have better credit simply because their credit history is so much longer. Because credit history is important to your total credit score, it is not necessary to cancel accounts you no longer use. Young people may be surprised that their credit score is low despite having few or no credit problems to speak of, but this is due to their short credit history.
The final 20% of your credit score is split evenly between the number of new credit applications and the diversity of accounts already possessed. 10% of a person's score is attributed to each of these factors. An individual should, therefore, be wary of opening too many accounts at one time, and open many different types of accounts over time. For example, a major credit card, a retail credit card, and a loan paid in monthly installments are all likely to have a positive affect on your credit score if opened over an extended phase of time.
Individuals who have a hard time understanding the credit score are not alone. A person who remains aware of the influential factors listed here doesn't necessarily need to grasp how the credit score is determined. All you need to remember is to keep on top of your bills, keep your balance low, and slowly open a range of accounts.
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