WHAT ARE THE FACTORS THAT AFFECT CREDIT SCORE?
Here are the principal factors affecting an individual’s credit score.
ONE’S HISTORY OF CREDIT PAYMENTS
The primary, and the most important factor that comes into play concerning one’s credit score is whether or not the individual can be trusted in terms of loan reimbursement. Such a score is composed of several different elements, including:
Timely bill payment. Any bills related to your credit report should be paid for prior to their deadline. Untimely and late payments have negative repercussions on overall credit score.
Delay in payment. If late payment does occur, how late was the payment performed. Be it 30, 60 or 90 days, one should always keep in mind that the later the payment occurs, greater are the negative effects the latter has on credit score.
Account collection. If any credit related accounts have been sent to a debt collector, this is high sign to lenders that the borrower may not pay back their loan.
Bankruptcy, lawsuits, public judgements, debt settlements, foreclosures and charge-offs all take part in one’s credit score and from a lender’s perspective, these factors are considered the biggest red flags.
The period of time extending to one’s last late payment. For example, a lender will consider an individual with a current important late payment of higher risk than an individual who has several late credit card payments extending back several years.
AMOUNT OF OWED DEBT
It is important to note that there is a significant difference between making payments on time to reduce debt and simply making payments online all while debt continues to increase. One’s credit ratio is taken into consideration by the earlier mentioned FICO Scoring System – a measure of debt in comparison to available credit. In the eyes of a lender, this is the second most important factor and such is composed of:
Total of available credit. Although one doesn’t need a $0.00 balance, owing the least amount of money as possible is always considered positive. In fact, lenders are equally interested in visualizing your financial responsibility and therefore, sometimes, having a small owed balance on your credit report can be seen as a good thing – as long as one is paying back on time!
Managing different accounts. Mortgage, car loans, credit cards and more impact one’s credit score. Softwares such as FICO take into consideration different forms of credit in order to ensure that all are accurately managed.
Total owed. One should always keep mind of how much money they owe in terms of how much money was borrowed. Once again, less is better. An individual with $75 on a $500 limit is considered more trustworthy than an individual owing $8500 on a $10 000 card limit.