Understanding the Factors of Your Credit Score

     Everybody is aware of the importance of a credit score. It is your ticket to be approved of a loan whether it is a card, car loan or mortgage.  It represents the risk that a lender will face in lending you a particular amount. It also determines the amount you can borrow. Nevertheless, there are factors that could affect your score. How do you find out that your credit is good? Following are some important factors of your score:

1. Your payment history plays a major role in the calculation of your score. This is the record of the payments made to creditors and shows any default on your outstanding debts, late or missing payments. In general, this composes about thirty-five percent of your score. A bad history of payment is the worst thing to happen to your rating. Any notation on your payments will remain on your credit for seven years, regardless if the debt has been paid or settled.

2. The next factor is your credit usage ratio. It compares the amount of credit readily available to the amount you actually used. The more unused credit, the higher your score is. This is a bit tricky since it only takes into consideration your open accounts. Sometimes, paying off an account and closing it could hurt this portion of your score. Having many open accounts and keeping the balance down could boost this portion of your score. This is usually weighted about thirty-percent of your score.

3. The length of your credit history is the next determining factor. This constitutes around fifteen percent of your score. The purpose of this score is to give lenders a clear view of your debt-paying habits. A longer credit history means more information that a lender takes into consideration. This is the only factor that a consumer cannot affect in a way; nevertheless, it suggests that it will be better for you to begin establishing your credit quickly. The lesser credit history means a lesser value of your score in the eyes of the lenders.

4. Another important factor is the different types of credits used. If you have only a single type of loan like a credit card, this portion of your score will be lower. Having several debts such as credit card debt, non-revolving bank loans, mortgage or car loan will increase this part of your score since it shows to lenders that you know how to manage several types of loans. This constitutes ten percent of your credit score.

5. Your current state is also another important factor. This is the reason why stability matters. The stability measure is usually based on work related information such as the length of time you have been with the company and its stability. Aside from work information, your address also plays a major factor. Living in the same address for three years or more will provide you a stability rating.

     Knowing these factors could help you improve your credit score. Check them out and find a way to improve or increase them.

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