It is immensely helpful to be aware of what actually affects your credit score. It allows you to make informed decisions in regards to your finances, spending, and the way that you use your money. Learning these principals will allow you to manage your finances on a daily basis without having to think too hard about how it affects your score. It will give you useful tips on how to keep your credit score high and continue growing it in the future. 

Payment history:

The factor that affects your credit score the most is your payment history. The longer and better the payment history, the higher the credit score. If you have a long history of paying on time, your score is going to be sitting pretty! But if you are ever delinquent in payments, late, or you just have zero to little history at all, your score could take a pretty severe hit. Always make sure that your payments are on time and this will go a long way to boosting your credit. Making late payments is an easy mistake to make, but it is also an easy one to avoid. Setting reminders in your phone or calendar is an amazing way to remind you to make that payment on time so you don’t forget! 

Amount Owed:

In second place, is the amounts owed on your credit. If you have credit cards, a mortgage, a car loan, and the amounts of your credit are at the limit or maxxed out, you are doing yourself an incredible disservice. This happens the most in regards to credit card debt. Most people don’t realize that just because the limit on your card may be high, doesn’t mean you should use the entirety of the amount that was extended to you. Your best bet is to use 50% or less of your credit limit as this shows the credit bureau that you don’t have a constant need to be using credit all the time. Your score could drastically improve if you start using the 50% rule and keep the amount of credit owed to a minimum. 

Length of Credit History:

Sitting in third place is the length of your credit history. If you have only had a credit card for a year or so, your score may not be as solid as your parent’s. They may have had credit history for 20+ years, which means that long standing has gone towards building their score over the years. This isn’t an insurmountable problem, but it is something to consider when you are wondering why you have a lower credit score. If you just opened your first credit card a year ago, that might be why. 

Last but not least is:

New credit. 

If you are trying to maintain your credit score or build it in preparation for purchasing a home, make sure you steer away from opening new credit if you can help it. If your goal is to buy a home in the next few months, opening a new credit card or purchasing a car could drastically lower your score. What happens to the bureau when this happens is they see a large loan opened with no payment history as of yet. Your new loan is exactly that. It’s new and therefore has no history of payments being consistently made. Basically, one way of putting it is that you haven’t proven that you have the ability to pay it consistently yet, so they have no basis to lend you new money in addition to that till they have some history of proper payment on that loan. Opening new credit when getting ready to purchase a new home is never a good idea and if you are considering it, please check with your loan officer first to let them know so they can take that in account when working with your mortgage and application. 

We hope that by learning about the aspects of what affects your credit, you feel more prepared to start getting ready to purchase that house! Please apply on our webpage to get started with a loan specialist! We would love to assist you in purchasing the home of your dreams!