There are five major factors that impact your credit score:
Payment History
Payments are made on time and in full every time. This accounts for 35% of your credit score.
Credit Usage
Your credit utilization ratio, or the amount of credit you are using out of the total amount of credit available to you, takes up 30% of your credit score.
Credit History
15% of your credit score is owed to how long you have had the credit accounts under your name. The longer your credit history, the higher your score.
Credit Mix
This takes into account the number and different types of accounts you have. A wide range of accounts typically means a higher score. This is 10% of your score.
New Credit
Another 10% of your score comes from the number of new accounts you have opened. Too many new accounts or credit inquiries for new accounts can flag you as a risk.
You can see from the above list that specific financial choices can impact your credit very differently. When it comes to your credit score, there are a few big mistakes that can hit you hard and severely damage your score. Here are some examples of big credit score hits:
- Missing Payments
Because payment history accounts for 35% of your credit score (taking up a bigger portion of your overall score than all other categories), even one missed payment can negatively impact your credit score. A few missed payments can be disastrous. This is why if you are ever struggling to pay your bills, you should reach out to your lender right away. Working with your lender to come up with a payment plan can prevent your credit from plummeting.
- High Credit Utilization Ratio
You can calculate your utilization ratio by taking the total amount of credit you are currently using and dividing it by the total credit available to you. You should make it your goal to stay under 30% utilization, although under 10% is even better. It may appear to creditors that you are too dependent on your credit if your credit utilization ratio is too high. This can decrease your credit score as well as limit creditor's willingness to open lines of credit up to you in the future.
- Applying for New Credit Within a Small Time Frame
Every time you apply for a new line of credit and a lender requests your credit report, a hard inquiry is noted in your credit report. These hard inquiries will stay on your report for two years. One or two hard inquiries can make your score go down a few points for a short period of time. Too many hard inquiries can lead creditors to believe you are in financial trouble or having a difficult time getting more credit.
- Defaulting on Accounts
Foreclosure, bankruptcy, repossession, charge-offs, and settled accounts can deeply hurt your credit score and remain on your report for many years.
No matter your financial situation,
credit repair is possible. Veitengruber Law offers customized credit repair solutions to help you improve your score. You can feel empowered to change your financial situation with the knowledge of how credit scores work.