Many factors affect your credit score, especially timely payments and how much you use your credit limit. Your credit score depends on several factors, such as whether you pay bills on time or not and how long you have used credit. Understanding what factors affect credit scores helps you plan the most effective way to build or protect your credit. Ensure the reliability of your tenants with accurate and comprehensive tenant credit scores.
Credit scoring companies calculate your score from the data in your credit report. Although they will not disclose their exact formula, they will share the basic materials they use to calculate the score. Why do you care? Because your credit often holds the key to other parts of your life: can you get a credit card or car loan, and at what interest rate; can you buy a house or rent the apartment you want; even how much you pay on a car insurance and utility deposits?
The factors that affect credit scores most
The two major scoring companies in the US, FICO and VantageScore, differ slightly in their approach, but they agree on the two factors that are most important. Payment history and credit usage, the part of your credit limit that you actually use, make up more than half of your credit score. Focus your attention mostly on both of them while keeping an eye on other factors.
Here are details of all the factors that affect your score:
Payment history
Your credit report reveals your payment history, or whether you have consistently paid bills and other obligations on time. Fico says payment history is 35% of your score. VantageScore says payment history counts for 3.0% in its 40 scoring model.
What to do: pay all bills on time. Paying bills 30 days or more late can affect your score – and the later you pay, the greater the loss. Set autopay or calendar reminders so you don’t miss due dates. You may also want to ask creditors to advance your due dates so that they can better adjust to it when you receive payment.
Credit utilization
The amount of your credit limit you use, expressed as a percentage, is called credit usage. FICO says the amount of available credit you use counts for 30% of your score, while VantageScore 3.0 keeps credit usage at 20%. What to do: experts recommend not using more than 30% of your available credits. People with the highest scores use much less than that. To keep your credit usage down, you can try things like setting balance alerts or making extra payments during the month. The good news is that the damage to the score from high credit usage can be reversed. Once you have paid the higher balance and the lender reports it to the credit bureau, the damage disappears.
Additional elements of credit score that you should be aware of
Once you’ve mastered making timely payments and keeping credit usage low, focus your attention on other credit factors. These also affect your score, although not as much:
How long you have credit: the longer the better, so keep old accounts open until there is no compelling reason to close them, such as the annual fee on the card you no longer use. You may be able to help yourself a little in this category by becoming an authorized user on an old account with excellent payment records. What type of credit you have, or credit mix: it’s best to have a mix of installment accounts that have a certain number of equal payments, such as car payments or mortgages and credit card accounts.
The period since applying for new credit so far: each application that causes stiff inquiries on your credit may be a few points lower than your score. Total balances and debts: this is best if you are making progress in repaying your debt.
Factors that don’t affect your credit score
Checking your score: if you get your score through your bank or free credit score service, it doesn’t affect your score. This is because checking your own score is considered a soft stretch on your credit. You can check it as often as you want, your score will not be affected.
Rent and utility payments: in most cases, your rent payments and your utility payments are not reported to the credit bureau, so they are not counted in your score. The exception is if you use a rent-reporting service or if you delay utility payments. The utility company may charge it or sell it to the collector, who may report it to the credit bureau and damage your score. Some products, such as Experian Boost, allow you to add utility and qualified rent payment information to your Experian credit report, which may affect your credit.
Income and bank balance: the credit report includes some information from the employer, but is only used to match the account data to the right person. A salary increase will not increase your score and it is possible to make credits even on small incomes. And since the report only lists credit accounts, not savings, checking or investment accounts, your balances in them won’t help your score either.
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