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Archive of posts published in the category: ratings
Oct
23

Factors Affecting Credit Score

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The credit score is an expression used to determine one’s creditworthiness. An analysis of a person’s credit files sourced from credit bureaus is done by lenders to make decisions on whom to lend money. Credit scores are used to determine whether you qualify for a loan or not, and at what interest rates and credit limits. To have and maintain good credit is crucial when you need a loan, it will help in speeding up the process. Bill payment history, level of debt, credit history age, number and types of credit inquiries are some of the significant factors that affect creditability.

Financial Background

35% of your credit score is determined by bill payment history. To have a good credit score, you should ensure all your bills are paid on time. It is challenging to acquire a loan if you have any bill payment issues, like repossession of assets due to lack of payment. Even going against the payment agreements affects your credit score negatively. This history is usually recorded by credit bureaus. The best way to keep your credit score up is to ensure your records are presentable.

Amount of Debt Owed

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Another factor that affects 30% of your credit score is the amount of debt you owe creditors. This shows that you apply for other loans when you still have pending loans. Lenders and loan companies look at the amount of overall debt you carry, credit utilization and your loan balances. Lending money to someone is a significant risk and lenders will want to have maximum security on their money. Preventing high levels of debt by paying before acquiring another loan ensures a high credit score and attracts lenders to invest in your projects. With a high level of debt, one might end up getting late with some payments, thus increasing the credit history age, which is another factor that affects creditability.

Late Loan Payments

The longer you stay without paying a loan, the lower your credit score goes. Ensuring you pay loans on the agreed time, protects your credit score. It also increases your creditworthiness because investors would trust an individual that respects the terms of the agreement. This contributes to 15% of your credit score, and it considers the age of your oldest account and the average age of all your accounts. To protect your credit score, one should have one account or a few to also provide security for your investor’s money.

Credit Accounts Under Your Name

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Creditworthiness is also determined by the types of credit accounts on your report; these are revolving accounts and instalment loans. Having both contributes to 10% of your credit score, it is not significantly impactful but still relevant. Other than credit cards, one should also have loans for assets and even personal loan accounts.

Number of Credit Inquiries

The number of credit inquiries, especially over short periods, contributes to 10% of your credit score. Each time you apply for a loan; an inquiry is placed on your credit report. The more inquiries you make, the likelihood that your credit score goes down. It is okay to have a few inquiries, but you should avoid making several inquiries at a time. Some loaning companies limit you to either one or two inquiries per day to prevent a high number of credit inquiries, helping you maintain your credit score.

Being creditworthy is essential in today’s economy in order to run multiple things with limited capital. It helps you manage to start businesses or acquire assets without having sufficient funds. Some other factors indirectly affect your credit scores such as income, bank balance and employment status but are not a factor in the expression that calculates your credit score. It is vital to maintain a good credit score to access loans easily.…