A credit score provides detailed insight about your financial behavior to the money lenders. These insights are then analyzed by the money lenders to predict whether you are reliable or not for a loan. FICO and VantageScore are the two most important credit bureaus in the USA who provide scores on the basis of two factors, one is timely loan payment and overall debt management.
With the use of advanced algorithms all the credit history reports are combined to analyze the positive and negative signs in the credit behavior. The following blog will discuss the factors that are evaluated to sum up the credit score.
Factors Influencing your Credit Scores
Maintaining a good credit score is imperative to obtain loans from banks or other sources. It also eliminates unwanted stress related to financial burdens. Let’s check out the factors that sum up the credit scores.
Payment Timeline
This is one of the most important factors that concern the lenders while evaluating your creditworthiness. 35% of FICO score accounts for timely payment habits. Paying your debt allotted for monthly payment is extremely important. It reduces loan burdens and allows you to avoid foreclosure or bankruptcy. You can balance your burden by paying out the big loans first as it enhances your credit scores.
Available Credit and Balance Ratio
The credit limits of your cards and the outstanding balance greatly influence your credit score. Paying off high debt earlier gives your credit score a boost. A high credit score typically reflects 10% credit utilization and low score indicates credit utilization of around 30% and above. In FICO score this ratio accounts for 30% of the score. It considers the credit utilization rate of individual cards and also a total for all accounts to finalize the score. To be able to manage your financial profile efficiently it is recommended that you consult credit repair and counseling services Sacramento.
The Credit Age
Aged credit history enhances your credit score. A longer credit history enhances your credit score. FICO evaluates your financial behavior by accounting the age of your oldest account, the age of the latest account and the average of all the accounts in between. Closing an account in good condition is considered in your credit report for as long as 10 years. FICO allots 15% of the credit score to credit age.
Complexities of Credit Mix
The ability to handle multiple debts accounts is good for credit score. The combination of different credit accounts such as mortgages, student loans, personal loans, house building loans is preferred by credit scorers and it enhances the credit score. Having multiple credit cards is also beneficial for boosting credit score. FICO allots 10% of the credit score to the credit mix.
Entry of New Credit
New loan application and processing of that credit application by lenders decrease your credit score initially based on hard inquiries. It decreases by more than 5% initially, and once you start monthly repayments of loans the score reflects positive rating. 10% of the FICO score accounts for new credit.
However, it is important to note that different hard inquiries are not considered the same by the credit scorers. Different installment loans such as house building loans, student loans, car loans, etc are categories and then lump together the hard inquiries available on the same types of loans made over a short span to consider as one inquiry. However, hard inquiries made in respect to credit cards are not included within other loan types and individual credit card loans hard inquiries create additional impacts on the credit score.
Conclusion
Maintaining a good credit score elevates your chances of availing future loans. Your credit score is compared with that of other people by the lenders before approving a loan. Thus, keeping a check on your credit report regularly can save you from a low credit score. Moreover, you must ensure that all the data included in the reports are accurate to be able to dispute any future discrepancies. Maintain the credit habits mentioned above and enjoy easy loan approval.
