Your credit score is a critical financial indicator that can impact your ability to secure loans, obtain credit cards, and even rent a home.
Credit scores are widely used by lenders, landlords, insurance companies, and other financial institutions to assess your creditworthiness.
Understanding the factors that affect your credit score is essential for managing your credit wisely and maintaining a healthy credit profile.
Payment history: Your payment history is the most significant factor that affects your credit score. It accounts for about 35% of your credit score.
Credit utilization: Credit utilization refers to the percentage of your available credit that you are currently using.
Length of credit history: The length of your credit history also affects your credit score. A longer credit history is generally considered favorable as it provides more information to assess your creditworthiness.
Credit mix: The types of credit accounts you have also impact your credit score. A healthy credit mix that includes a variety of credit accounts, such as credit cards, mortgages, car loans, and student loans, can be seen as positive by lenders.
New credit inquiries: When you apply for new credit, such as a loan or a credit card, the lender may pull your credit report, resulting in a hard inquiry.
Public records and derogatory marks: Public records, such as bankruptcies, tax liens, and civil judgments, can significantly lower your credit score.