Knowing the criteria for determining your credit rating can help you maintain a good credit score. Credit ratings are important for various reasons. Ratings decide approvals for mortgages and other loans, and your credit score range determines the rate you receive on such loans. Learn the factors that influence your score and make wise credit choices.
Payments to Your Creditors
A good credit score entails improvement in various credit areas, and making timely payments every month to creditors, lenders and other bill collectors can help you raise a low score an maintain a good credit rating. Thirty-five percent of your credit score is based on your payment record. Paying on time each month often results in a higher score, whereas delinquencies and lateness reduce your rating. Budgeting and organization help with timely payments. Keep a mental note of due dates, and pay early.
Outstanding Debts
Don't let too many debts ruin your credit rating and make you ineligible for loans. Credit reports not only list the names of your creditors, but also the amounts owed to each company. The amounts owed is another criteria in determining credit ratings, and maxing out your credit cards or owing excessive debts can have a 30 percent negative impact on your personal score.
Long Credit History
A long history of credit plays a 15 percent role in credit ratings. With this said, it's expected for someone who's held credit for 10 years to have a higher score than someone who recently applied for his first line of credit. Maintaining a long credit history involves keeping older credit card accounts open, regardless of whether you use the card. Closing accounts reduce the duration of your credit history and brings down ratings.
Credit Types
Different types of credit affect credit ratings differently, and the mixture of accounts you hold makes up 10 percent of your credit score. For example, a mortgage loan or student loan may have little negative effect on your credit score, whereas multiple credit cards with balances can bring down your score. Acquire a mix of credit, and if you only have one credit account, add a another to diversify and help your score.
Credit Applications and Credit Rating
Inquiries factor into the remaining 10 percent of credit scores. Credit applications and inquiries are inevitable, especially if you need a mortgage or auto loan. However, don't get into a pattern of impulsively applying for credit. Excessive inquiries within a short period will harm your rating.
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