Among other things, your credit scores evaluate whether or not you will be able to repay a loan. They also help lenders in determining credit limits, loan qualification, and interest rates. And it is worth noting that this three-digit number is responsible for most of what will happen in your financial life.

For example, your credit score determines how low or high the interest rates you pay are and whether or not you will be eligible for credit in the first place. Note that a variety of different factors are taken into consideration when your credit score is calculated. This is why it is important that you know them all. Here are some elements that affect your credit score the most.

Payment History

Did you know that payment history is usually the most heavily weighed factor that impacts your credit score? Keep in mind that credit reporting agencies in the US will check to determine if you have been paying your debt, such as student loans, on time.

Also, remember that payment history includes various account types, such as major credit cards, installment loans, retail accounts, and mortgage loans. By promptly making payments on all your different accounts, you can earn a high credit score.

Amount of Debt You Owe

About 30% of your credit score is determined or based on the amount that you currently owe. Lenders have formulae to determine how much debt is too much?  Some of the formulas that lenders use are your debt to income ratio.

Credit Utilization Ratio

Note that the credit utilization ratio is important and measures the ratio of your total credit card balance to your total credit limit. You can calculate this on your own by adding up the balances of all of your credit cards and dividing the total by the total available credit. For instance, if the limit of your credit card is $1,000 a month, a balance of $600 in your account means that your credit utilization ratio is 60%.

Length of Credit History

The period of time that you have had your credit accounts open also impacts your credit scores. The general rule is that the longer you have had an account open for, then the more this will help your credit health. This is the reason closing old accounts can actually damage your credit scores. This is because as it will shorten the length of the credit history.

Types of Credit Used

If you have a combination of account types on the credit report, then FICO scoring models can reward you by awarding you a higher credit score. Note that the type of credit that you use is also known as your credit mix. It is worth 10 percent of your credit score.  

FICO assesses whether you’ve experience managing revolving accounts (such as credit cards) as well as installment accounts (such as personal loans). On the other hand, if your credit experience is only limited to one kind of account, you might not earn as many points as you may have otherwise.

Final Thoughts

There is a lot that usually goes into your credit score. Also, keep in mind that your credit score can frequently fluctuate, so it is important to keep tabs on it.

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