There are a number of factors that affect your credit rating and therefore your overall credit score in the USA. You can both positively and negatively impact your credit rating depending on how and when you borrow money online or otherwise, how you repay any debts you have as well as your overall financial practices and behavior.
The good news is, once you know which factors affect your credit rating and which you can influence, you can take control of your credit score and improve your financial situation.
Knowing and understanding the financial factors that affect your credit score means you have the power to work towards changing it over time for the better.
What Is My Credit Score?
A credit score is a number attached to your financial profile and history. A credit score typically ranges from 300 to 850, with 850 being the ideal score. Your credit score is what banks, payday loan companies and other lenders will look at when they offer you a loan, mortgage or financial arrangement of any type.
A higher credit score indicates to a lender that you are responsible with money and your spending and that you are a safer lending prospect when it comes to them lending you money.
This means a higher credit score will often allow you to borrow larger amounts of money at a better rate of interest. This can be significant as for example, if you find yourself needing to borrow 1000 dollars, but you have a poor credit score, it may be that you are only able to get a 600 loan, with the lender taking your credit score into account.
A low credit score will illustrate to a bank or lender that you may be a riskier person to lend money to. A poor credit score or a bad credit score will often mean you cannot borrow money online instantly at the best rates.
What Affects Your Credit Score?
There are many things that affect your credit score and many things you need to take account of when it comes to looking after your credit score in the USA.
There are however, 5 main factors that affect your credit score. The exact criteria used by each scoring model varies, however, these are the most common factors that affect your credit score. We will refer to your FICO® Score (read more), because this is the credit score used by 90% of top lenders.
Top Factors Affecting Your Credit Score in the USA
Ultimately, your financial practices and behavior have a big impact on your credit score and you should always spend responsibly and only borrow money when you really need to. Always consider alternative borrowing options like family and friends or credit cards, before you opt for a payday loan or a loan like a $500 loan and more.
Amounts of Money Owed
Your credit usage is very important when it comes to calculating your credit score and when lenders carry out credit checks this will be a consideration. Your credit utilization ratio takes into consideration the amount of credit you are currently using and your revolving credit limits. This ratio will tell lenders how much of your available credit you are utilizing, giving them an impression of how reliant you are and non-cash funds.
If you are consistently using more than 30% of your available credit this is a negative for lenders. Credit utilization makes up 30% of your FICO score.
Your payment history is one of the most important things when it comes to credit scoring in the USA. Your payment history refers to any scheduled payment, which could be paying your phone bill or making repayments on a loan.
Things like missed payments or late payments will negatively impact your credit score. This is because lenders want to be sure that you are somebody who pays the money they owe on time. Payment history makes up 35% of your FICO score, making it one of the biggest factors affecting your FICO score.
The length of your credit history accounts for 15% of your FICO score. The length of your credit history means lenders will consider the age of your oldest credit account and the age of your newest credit account. Your credit score will also take into account the average age of your accounts.
Generally speaking, the longer your credit history, the higher your credit score will be. However, it is worth noting that what you have done with these accounts is also very important.
20 years of credit history that show you borrowing without being able to repay will definitely have a negative impact on your credit score.
Your new credit is the amount of credit accounts you’ve opened recently. New credit can also include the number of hard enquiries lenders have made on you when you applied for credit. New credit makes up 10% of your fico score. Having too many recent accounts open or recent enquiries can hurt your credit score.
Your credit mix refers to the range of your credit history. Those with better credit scores often carry a diverse portfolio of accounts. This might include a title loan (on a vehicle), credit cards, a student loan, mortgages and other credit products. Accounting for 10% of your FICO score, your credit mix will show how well you have been able to handle a range of credit products.