If you’ve ever tried to mortgage a home or finance a vehicle, then you understand the importance of having a good credit score. Although you may know that having good credit is important, do you know about the five factors that affect your credit score?
Being knowledgeable about the five credit score factors can help you develop an action plan for improving your FICO credit score.
Your payment history is probably the most important credit score factor, making up 35% of your credit score. Missing a single monthly payment can reduce your credit score by at least 50 points.
To improve your FICO score it is imperative that you make timely payments for at least two years since most credit reports show the last 24 months of your payment history.
Try your best to avoid bankruptcy, lawsuits, liens, and foreclosures because these items stay on your credit report for at least seven years.
Debt weight is the factor that measures the amount of debt you’re using in relation to your total available credit. This factor makes up 30% of your total credit score and is comprised of different types of credit including mortgages, student loans, and credit cards.
To improve your credit score, keep your debt weight below 30% of your total available credit. Also, avoid closing any accounts that you’ve paid off. Having these accounts available will improve your score, even if you’re not using them.
New lines of credit make up 10% of your FICO credit score. Although 10% may seem insignificant, opening several lines of credit at once can damage your credit score.
To avoid damaging your credit, opening new accounts should be spread out over several months.
Having a good mix of credit is beneficial to your credit score. Making up 10% of your credit score, credit mix represents a blend of different credit types such as credit cards, mortgages, and loans.
Length of Credit History
The amount of time you’ve had an open credit account can affect your credit score. This factor makes up 15% of your credit score. For a favorable FICO score, do your best to maintain a long credit history.