The 5 Biggest Factors That Affect Your Credit

Before we can manage the factors which affect the credit score, we need to know something about the things which relate to the credit scores.

What is the credit score?

 A credit score is a three digit number given to an individual to judge whether he is trustworthy for giving loans for people with bad credit or not. These credit scores are given by the credit reporting agencies that have every financial data of an individual. Whenever someone applies for a loan or any type of finance, then the lender first contacts the credit reporting agencies to check the customer’s credit score and then decide whether they should grant a loan to that person. These scores range between 300 to 700 words, the higher the credit score lower will be the interest rate and lower the credit score higher is the interest rate charged on your loan.

Which are the credit reporting agencies?

Credit reporting agencies are those agencies who maintain all the credit related information of an individual. Each and every person who applies for a credit card or any kind of loans, their information like mode of payments, income, and all other     information’s is there with them. They are in contact with every bank and every financial institution which provides credit and these banks and financial institutions update them with all the information of their consumers each month. There are three large credit reporting agencies in the United States, Transunion, Experian and Equifax whose job is to collect every financial data of consumers, and maintain the information for future in case someone asks for references.

These three credit reporting agencies never share their information regarding their consumers with each other so while applying for a loan you should go and check your credit history in all the three credit reporting agencies as you may never know which agency your lender will go to.

All business agencies like auto lenders, credit card companies, insurance agencies, banks, use your credit history data provided by these credit reporting agencies in order to know whether you are a credit trustworthy person or not. High credit score would mean less interest rate, but if you have low credit score then, you will be charged with higher interest rates. 

All the lenders also send your reports to these three credit reporting agencies to update their information. Every payday loans no credit check lender is legally bound to regularly update all the information of their current customers to these credit reporting agencies.

Factors which affect the credit score of a person 

Payment History: Your payment history is the most important content to measure your credit score. If your payment records are not good, then you may spoil your credit score to a great extent. Usually credit reporting agencies look at the delays in payment. The greater is the delay; the lower is the credit score. Your payment history is 35% of the whole credit score given to you. 

Using Credit: The Credit utilization is also one of the most important factors used for measuring your credit score. Your total credit balance contributes around 30% in determining your credit score. Credit usage is used for measuring credit score because it portrays the total credit, which you take every month as a revolving credit.  It puts a major negative impact on your credit score if you don’t pay your credit card balance on time. If you pay your credit card balance on time and use less credit then you may boost your credit score positively to a great extent. Some people think that closing a credit card will also improve their credit but it is not so, closing a credit card may spoil your credit score as you will spoil your credit utilization ratio. You should always use less credit and pay  the credit card balance on time to maintain a good credit score.

Period of Credit History: The length of your credit history also affects your credit history. That is why it is said that if you want to close a credit card account then close that account which you bought recently, you should never close that credit account which is the oldest as it may have an old credit history, which shows that you are a good customer and lenders feel safe in lending money to the person with old credit history. Old credit history comprises 15% of your credit rating.

New Accounts: opening a new credit account in spite of having already 1 credit card account spoils your credit score. Opening a new credit account means you are in need of new credit and taking more credit is harmful for your credit score. So it is suggested that you should not open a new credit account unnecessarily. A new credit account contributes 10% of your credit ratings.

Different Types of Credits used: the credit score of an individual is positively affected if you are paying toward all your dues. Paying all your dues timely shows that you are concerned about all your debts and you are managing well from your income to pay toward all your dues on time. If you maintain a regular flow of money toward all your dues then it will put a nice remark on your credit score and you can apply for many loans at one time in the future. Paying toward all dues contribute 10% to the credit score.

If a person manages all the above five mentioned things then he can maintain a really good credit score and  will not have to worry about getting into unmanageable debt.