Your credit score is a number that ranges from 300 to 850, and it can have a significant impact on your life. There are many variables that could influence what your score is at any given time. For instance, if you are using too much of your available credit, it could be seen as a sign that you are unable to manage your money. Let’s take a look at some of the other variables that go into calculating this figure.
Paying On Time Is Extremely Important
Missing a payment can lower your credit score by 50 to 100 points even if you have no other missed payments on your credit report. A payment is defined as missed when it is paid 30 days past its original due date. Further damage can be done to a credit score if you miss a payment by 60 or 90 days.
After 90 days, it is possible that a creditor will send your debt to collections. Once that happens, your score can fall again, and the collection note will stay on your credit report for up to seven years. An exception will generally be made for medical debt as that cannot be reported as late for at least 180 days after the debt is acquired. Your payment history accounts for 35 percent of your credit score.
How Much Do You Owe?
Your debt-to-income ratio (DTI) can have an impact on your credit score as it accounts for 30 percent of your credit score. In other words, if you tend to spend as much as you make, it will likely lower your score. A company such as Barron Advisors may be able to help you create a budget that lowers your monthly bills and improves your DTI.
How Long Have You Had Credit For?
Generally speaking, individuals who have longer credit histories will have higher scores than those who don’t. However, those who are in school or otherwise just starting their credit journey can improve their scores quickly. In most cases, it only takes about a year or two to convince lenders that you can be trusted to repay a debt.
It is important to note that your credit age is an average of all your accounts open at any given time. Therefore, cancelling an old account or opening a new one can temporarily ding your credit score. Furthermore, your score could be temporarily downgraded each time a creditor pulls your report. The length of your credit history accounts for about 15 percent of your overall score.
Do You Have Different Types of Credit?
Lenders like to see that you have experience with both secured and unsecured debts. An unsecured debt is something like a credit card or personal loan that is based on nothing more than your promise to repay it. An auto loan or mortgage are secured loans as they are based on the value of the underlying asset.
Your credit mix accounts for about 10 percent of your credit score. However, it is generally not a good idea to open an account just so that lenders will see it when pulling your credit report. Companies such as Barron Advisors may be able to further explain how this variable may ultimately impact your ability to get a loan in the future.
Having a good credit score can make it easier to get low interest rates on loans or lower insurance premiums. In some cases, it can be the difference between getting a job and seeing it go to someone else. Therefore, it is critical that you keep an eye on your credit report, and this can be done by requesting your free copy each year.
