Get smart about credit: Know what factors affect your credit score

The way you use credit can affect your ability to borrow money in the future. Using credit responsibly is key to securing a positive credit rating. Get Smart About Credit Day is Thursday, Oct. 19, which makes it an ideal time to learn what factors help determine your credit score.

“Maintaining a strong credit history is key to achieving financial security,” explained Bryan Johnson, Branch Manager of our Mills Civic location. “Knowing what counts toward your credit score can help you manage your finances better and ensure that you don’t overextend yourself.”

Top 5 factors that affect credit scores

According to FICO^®, there are five main factors that can play into determining a final credit score. Some have a larger impact than others, but each area is examined to determine a person’s ability to pay back a loan. Following are the five factors FICO^® uses to calculate a credit score and the percentage each factor plays in determining the final score.

1. Payment history (35 percent): This is the most important factor in determining your credit score. Showing consistency in paying bills on time is vital to securing a higher credit score as it shows your reliability in paying off a loan or other debt.
2. Credit utilization (30 percent): How you handle debt plays the second largest role in determining a credit score. Maxing out credit cards and carrying large balances can have a negative effect. FICO^® recommends using only about 7 percent of available credit.
3. Length of credit history (15 percent): Building a positive credit history takes time. The longer you can show a timely credit history, the more likely it is to positively impact a credit score.
4. Too many accounts and inquiries (10 percent): Generally, it’s not a good idea to open a large number of accounts – particularly if many of them were opened over a short period of time. On top of that, when a business accesses a consumer’s credit report, it creates an inquiry. Inquires can come from lenders, retailers or even landlords. Having too many accounts and inquiries can have a negative effect on your credit score.
5. Credit mix (10 percent): A variety of different types of accounts can have a positive impact on a credit score. If 90 percent of the accounts on your credit report are credit cards, for example, it will not be reflected positively in a final credit score. When you are able to consistently make payments on a variety of accounts – car loans, credit cards, student loans, home mortgages, etc. – it shows you are less of a credit risk.

Questions?

Contact Bryan Johnson at (515) 222-1144 with specific question on what might be impacting your credit score or for tips on how to improve your credit rating.