What makes up a credit score?

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credit repair

Lenders are now placing a great importance on consumers’ credit scores, both as a means of determining whether they will qualify for a line of credit, and to determine the rates and fees they might face as a result.

For this reason, consumers who are on the lookout for credit repair tips might want to think about the ways in which they can improve their credit scores based on the five factors that go into making up that all-important three-digit number.

Mortgage, auto loans, student loans, and credit card payments

The most significant is a borrower’s ability to pay their bills for all outstanding credit accounts on time and in full. This includes their mortgage, auto loan, student loan, and credit card payments, as well as others they may have, and comprises 35 percent of their total score. As a consequence, even one missed deadline or late payment can have a significant negative impact on a borrower’s credit rating, making it imperative that everything is taken care of exactly on schedule.

Not far behind on-time payments in terms of importance to maintaining a healthy credit score is the ability to keep balances under control. This is known in the lending industry as “credit utilization ratio,” and is, in plain English, the amount a person borrows using credit cards versus their total credit limits. For instance, if a borrower has five credit cards with a combined credit limit of $25,000, the closer they are to that threshold, the worse this aspect of their rating will be. It’s generally recommended that consumers try to keep the total amount they borrow at between 20 or 30 percent of their limits to maximize this aspect of their score. Contrary to a common misconception, lenders do not want borrowers to owe a sizable amount on their cards.

Credit inquiries and time

Though the above two considerations make up 65 percent of a person’s credit rating, there are other aspects to think about as well. For instance, the average length of time they’ve had all their accounts makes up another 15 percent of consumers’ ratings. Because of this, it’s imperative that they neither close old accounts nor open any new ones immediately prior to seeking a larger line of credit, as doing so can have a negative impact on their ratings.

There are two more factors to keep in mind as well, each making up 10 percent of a total rating. The first is the number of inquiries a borrower has made in the last several months, and less is considered better by lenders. This is because they feel that seeking a large amount of new credit may indicate a borrower has cashflow problems.

Line of credit types

The final consideration is the number of different account types a person has. Lenders like to see that a potential borrower can handle a large number of different financial obligations, so having lines of credit such as credit cards, mortgages, student loans and more is considered beneficial.

Learn more. Call 833-333-2283
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