This post is all about the 5 main things that goes into your credit score.
Credit Score
1. Payment history (35%)
Payment history is the largest factor contributing to your credit score. Missing a payment can stain your record for up to 7 years!
Setting up an autopay for the minimum balance so that you don't end up accidentally missing a payment is always recommended.
2. The amount owed (30%)
The amount you owed across all your credit cards is the next biggest factor.
This is tricky – it's not just the $ amount that you owe, but what % of your card's limit you have utilized.
Having a $1K monthly spend on a card having a $1K limit vs a $100K limit is very different. It is recommended to keep your total credit utilization rate below 30%, but the lower the better!
If you don't have a spending problem, get the highest limit possible on your card so that your utilization is always low – even in the case of an emergency expense.
3. Average age (15%)
Average age (15%) – it's not about how old you are – It's about how old your credit lines are.
Ever wondered why your Credit score dropped after you closed a card? It's because it's an average.
Never close your oldest credit card, even if you hardly use it!
4. Types of credit (10%)
Lenders want you to have the experience of handling multiple types of loans like:
- Auto loans
- Mortgages
- Credit cards, etc.
Even if you can afford a car straight out, you could get a small token loan and pay it off over a long time.
5. Number of inquiries (10%)
Any time you apply for a new credit line, it's marked on your report. These hard inquiries will stay on your credit report for about 24 months. However, hard inquiries usually has no effect on your score after 12 months.
Generally, the more inquiries you have on your report, the lower will be your credit score as lenders see you as a high-risk customer.
