Most people know just how important a high credit score can be for a strong financial situation but the majority of people do not know all of the factors that are taken into consideration when determining a credit score.
A credit score takes a variety of different statistics regarding your finances and compiles them together into a numerical rating that is an implied indicator your creditworthiness. People who boast the highest credit score numbers are thought to be the least risk for lenders. Any score above 700 is considered to be a good risk while scores below 600 are considered to be high risk.
Credit scores are changeable. As your financial conditions fluctuate so will your credit score. A variety of factors are taken into consideration so when any of these things change the score changes with it. Credit scores are affected by credit usage, the type of credit a consumer has, recent inquiries into the credit report and payment history.
There have been some recent changes in credit scores. In the past a single late payment could hurt your score, now just one late payment is not as damaging but a pattern of late payments is. Your past payment history counts for approximately 35% of your score, followed by debt ratio, which is 30% of the score. Debt ratio is the amount of credit you have used compared to the amount of credit you have available. The length of your credit history is assessed at 15% and 10% is the type of credit that you use.
Credit cards from retail establishments are considered negatively but regular credit cards, bank loans, mortgages and car loans are considered positive. The remaining 10% of your score is the recent inquiries on your report.
When you are aware of these factors you can take steps to increase your credit score. A good example is changing your debt ratio by either paying down the balance or you can get the credit limit increased, either way your credit score should go up. You can also cancel retail credit cards, limit the new inquiries on your report and of course, make sure that all of your payments are made on time.
If you have inaccurate or erroneous information showing on your account that is also affecting your score so you will need to take steps to correct that. You will need to submit a dispute to the credit bureaus and get them to delete the erroneous information.
By taking into consideration these factors that affect your credit score you can take the actions necessary to repair your credit. Rebuild with new credit, repair the existing credit and your scores will go up.
