What affects your credit score.
Many people think that what you buy and where you buy it can affect your credit score, but this is not true. The credit agencies are not as interested in what purchases you make, as what you do after the purchase as far as paying back. What they care about is how much you send compared to how much you earn.
The things that affect your score are:
Your Payment history: This accounts for 35% of your total score. It is the biggest single factor considered. Late payments, underpayments, bankruptcies and accounts out for collection will negatively affect your report. It can take up to 7 years for some of these to be removed.
Credit Utilization:. The second biggest factor on the report. It accounts for 30% of the score. 30% is an important number to remember. To have a good score you must not use more than 30% of your available credit. The ideal goal is to try for 20% or less. Be careful about closing out credit cards. If you close out a zero balance card that has a $20,000 line of credit, you are reducing your allowable credit to meet 30% by $6000. It is often better to leave them at zero balance and use them once in a while to keep them active.
Length of your Credit History: The longer you have had credit and payment history, the more confidence lenders have in you. This counts for 15% of the score. It is not good to live an all cash life, because you will have no credit when you need it. It is better to use the cards and not carry month to month balances.
New Credit requests: Opening too many cards or applying too often for credit can affect your score by 10%. Try to keep your life stable and resist taking advantage of every offer. Having someone check your credit often for the purpose of a loan or a card will deduct points from your score. These are called hard inquiries. Soft inquiries , when someone checks your card as a routine condition of a credit card, job application ot a rental application, are not counted against you.
Types of credit can affect your score by 10%. It is good to have a mic of credit. Credit cards, home mortgage, car loans and student loans are each considered as different types. Banks like to see a mixture.
Remember you get 1 free credit report per year from each agency by going to https://www.annualcreditreport.com/index.action
This is the site mandated by the government for thee 3 reporting agencies. A good rule of thumb is to get a report from a different agency every 4 months. Each agency has to give you 1 and this will spread them out over the year.
