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our credit affects a big part of your life and not just when you borrow money. Credit affects your insurance rate, whether you have to pay a security deposit on certain services, and whether you get a job. So what affects your credit?
Your payment habits
A very big part of your credit score – 35% – is based on whether you pay your bills on time. Paying your bills on time every month is good for your credit score. On the other hand, if you consistently miss payments on your credit cards and loans, your credit score will drop. A single late payment in your entire credit history won’t hurt as much as several late payments or a payment that’s gone more than 90 days past due.
Serious actions like bankruptcy, repossession, foreclosure, debt collections, and tax liens weigh heavily on this part of your credit score.
How much debt you have
Thirty percent of your credit score is based on the amount of credit card debt you’re carrying. The credit scoring calculation doesn’t just take into account the total debt you have, but also how much of your credit limits you’re using. The closer your balances are to your credit limit, the more it hurts your credit score.
How long you’ve had credit
People with more experience using credit get points for their credit age, a factor that’s 15% of your credit score. The calculation takes into account the age of your oldest account and also the average age of all your accounts. Opening new accounts will lower your average credit age, so make sure you only open the accounts you really need.
The types of accounts you have
Having different types of accounts is better for your credit score. Mix of credit is 10% of your credit score. You’ll have a better credit score when you have both credit cards (revolving debt) and loans (installment debt) on your credit report. Remember that opening new accounts can lower your credit age, so avoid opening new accounts just to try to boost your credit score in this area.
Recent applications you make for credit
Credit inquiries count for 10% of your credit score. An inquiry is placed on your credit report whenever someone checks your credit report. There are two types of inquiries – hard and soft. Soft inquiries are made when you request your credit report, when companies pull your credit report for promotional purposes, or when your current creditors check your report for pricing, etc. These soft inquiries don’t affect your credit score. However, hard inquiries, which are made when you make a credit application, do affect your credit score. That’s one more reason to keep credit card applications to a minimum.
Time Limit for Negative Information
Most negative items stay on your credit report for seven years. Fortunately, negative information will hurt your credit score less as time passes and you add positive payment history to your credit report. Credit inquiries stay on your credit report for two years, but only hard inquiries made within the past 12 months will influence your credit score.
Andrea is the Chief Chick of Smart Money Chicks. After filing BK twice (once because she panicked, second time because the pro messed the first time up), she realized that it all could have been avoided if she understood more about how her Finances worked and the options available. At that point, she wanted to help as many as she could never make the same mistakes again. Our Promise is that all the content you read on here is created or edited by Andrea