These two factors make up almost two-thirds your total score. These are your credit history and debt. 15% is determined by how long your credit history has been. The next factor is the mix of credit you have used. High balances can be avoided and payments made on time will help you improve your score.
Payment history
A payment history can have a significant impact on your ability to borrow money. Credit scoring models consider several factors when determining your credit score. They also take into consideration how prompt you pay your bills. The number and size of late payments you make can affect your overall score. You can lower your score by making timely payments on your bills.
Late payments can have a significant impact on your credit score. It is usually 30 days late. A delay of just a few days will affect your score. The mark will remain on your credit file for seven years. While lenders won't report late payments, they may charge fees if you miss your due dates.
Debt
Your credit score is 30% dependent on your debt. You should keep track of the balances you have and what amount you can afford to repay each month. The amount of your debt will depend on many factors. Avoid charging for things you don’t have the funds for. If you owe more than you can afford to pay, this will lower your score.
To improve your credit score, you should pay off as much debt as possible. Your outstanding debt should not exceed 30% of your credit limit. This shows the lender that you are responsible with debt. If you have a great payment history, you can also increase credit limits. Lenders will increase your credit limit only if you are able to make your payments on-time.
Credit mix in use
Your credit score is affected by the type of credit you have. It doesn't matter if you have both revolving credit and installment credit. You can manage many types of credit and still pay your bills in full every month. This credit type can be disregarded if you have a history that includes late payments or high credit utilization.
About 10% of your credit score comes from the mix of credit types that you have. This could include retail accounts and installment loans. Having a diverse mix of credit types helps lenders see that you can manage your financial obligations and improve your score.
Length of credit history
When building credit scores, it is important to take into account the length of your credit history. Your credit score will increase the more you have credit history. This factor is calculated by adding up the ages of all your accounts and dividing them by the number of accounts you have. Eight years is your average credit history. Your credit score takes into consideration the age of all credit accounts and how often you have used them.
The complicated algorithm used to calculate your credit score takes into account a variety of factors including the age of your accounts. The credit scoring models use your oldest account as the basis.
Credit limit or debt
Your credit score is composed of several factors, including the debt to credit limit ratio. Your debt to credit limit is a percentage from your total credit. Many lenders calculate this number and use it in their scoring formulas. Lenders would prefer to see a low loan-to-limit ratio. A high ratio can signify that you are a risky borrower which could lead to lower credit scores.
Calculating your debt-to-credit limit ratio involves dividing the total amount in debt by the credit you have. The goal should be to keep your debt-to credit limit ratio under 30%. Your credit score may be negatively affected if you have a higher debt-to-limit ratio than 30%. You might not be able to buy a home or refinance an existing loan.