How credit agencies come up with your credit score is something that you may never fully understand. It is complicated for ordinary and typical consumers. But it’s not rocket science either. In general, there are key factors that determine your credit score and they include the following:
Amount of balances owed
Of all the chief factors affecting your credit score, the amount of balances owed is a major one. This one basically determines the amount of credit you use out of your available credit. Ideally, you need to use less because that’s better for your credit score.
Another major factor that affects your credit score other than the balances owed is your payment history. Ideally, you need to pay for your bills especially your credit bills in full and on time month after month. Otherwise, late payments even just a day or two may have an effect on your credit score. Avoid late payments as much as possible if you want to keep your credit standing in a good place.
Your credit history particularly its length is also a factor that determines your credit score. In general, the longer your credit history is, the better for your credit score provided that your history provides evidence of your good performance as a responsible payer. This is why it is extremely important to pay all your bills on time as they are reflected on your history over the years.
When you have a mix of credit like credit cards with mortgage, car loans and other forms of credit, it is an indication that you are a responsible consumer. If you’ve been paying your dues on time, this could be good for your credit scores. Just take extra caution when opening multiple lines of credit cards.
Finally, we have new credit as the last but not the least factor affecting your credit score. This may be just a small portion of your score but it’s important to keep in mind that opening a bunch of new credit may not be wise financially.