What’s your score made of?
dig into your credit score breakdown
The number one and two question I hear all day is "Why is my score so low? How can I get it higher?" There is not one single answer to give someone without properly assessing the breakdown of your file. It is beneficial to understand why your score is what it is. Credit scores are comprised of 5 key elements:
35% of your credit score is based on: Payment History
This is the MOST important factor in calculating credit scores. How you've managed your debt and paid lenders back is how lenders forecast your future behavior. A lender wants to believe that they can trust you enough to lend you whatever it is that you are asking for. Obtaining a 30, 60, 90 or 120-day late on your credit report can deplete your credit scores dramatically. I encourage one to communicate with companies that you hold accounts with if you foresee that you will be late on a payment. You could possibly avoid them reporting the late payment to your credit report and in turn, avoid damaging your score. One of the best ways to build your score is to make consistent and on-time payments.
30% of your credit score is based on: Debt Amounts
Lenders look at your current and outstanding debt to see if you have credit cards that are maxed out and installment loans that accumulate interest etc. If you have maxed out credit cards lenders will view you as someone who does not know how to properly manage debt. They will decline you instantly as you will be seen as a risk. Risky in regards to the company/lender not knowing if you are able to pay down and pay off the debt. The amount you owe on your credit card should NOT exceed 30% of the credit limit. Experts have deemed a 30% rule of thumb that applies to each individual credit card and the overall level of debt.
15% of your credit score is based on: Length of Credit History
It is impossible almost for a person who is new to credit to have a perfect score. A longer credit history provides more information and offers a better picture of your financial behavior. Simply began utilizing the credit that you have and maintain longstanding positive history to build your credit. Be patient as it can take time to be able to build that rapport that lenders seek. Some lenders want to see years of history, and the more lenient lenders will possibly give you an offer with a high interest depending on the risk assessment.
10% of your credit score is based on: New Credit
Being able to be approved for credit is a good thing, but to other lenders it looks like nothing more than more debt. However, as you began to use it and make on-time payments it'll began to factor into your payment history and be recognized positively.
10% of your credit score is based on: Credit Mixture
Although a vague category, it is not overlooked. Being able to manage different types of accounts, such as Revolving (credit cards), Installments (loans) and other open accounts indicates that the borrower can handle all sorts of credit accounts. There is less risk in the eyes of the lender.
Revolving Accounts i.e. Credit Cards / Installment Accounts i.e. Auto & Mortgage Loans