Five Elements of an Excellent Credit Score

Here you are, you’ve figured out your credit score is important to your future and can determine whether you are able to lease a car, mortgage a house, get a credit card or even a student loan. It can all seem overwhelming when you first take a peek at your credit report. Don’t worry, by breaking down the factors that affect your credit, you can narrow down what is affecting it and take steps to increase your score.

  1. Payment History: 35%

Making payments on time affects your credit score more than any other factor; it makes up a whooping 35% of your score. This is a serious red flag for any potential future creditors, making approval for anything that involves having good credit nearly impossible. Collection, repossession, bankruptcy, charge-offs, foreclosures, or even tax liens are considered severe payment issues and can wreak havoc on your credit score. Paying on time is absolutely paramount for anyone who wants a high credit score.

  1. Level of Debt: 30%

Debt level, or the amount of money you owe in credit accounts for 30% of your credit score. There are a few main factors that are taken into consideration when determining this number, the total overall debt you have, your credit utilization, the ratio of credit card balances to the credit limit, you’re your loan balance relative to the original amount loaned. In general, it is recommended to keep credit card utilization at 30% or less, in other words keep a balance of up to 30% of any credit cards available limit. Having too much debt, or high utilization can deeply affect your score. Luckily, by paying down those balances, your score will quickly rebound and improve.

  1. Age of Credit History: 15%

How long ago did you open your oldest credit account? 15% of your credit score is determined by both the longest open credit account as well as the average age of all open credit accounts. The “older” the credit age, the higher your credit score will be because it shows that you have a decent amount of experience in managing credit. Closing old accounts, and opening new ones lowers your score by lessening your credit age. Take this into consideration, as opening multiple new accounts all at once would not be a good idea.

  1. Number of Credit Inquiries: 10%

There are two types of credit inquiries, “hard” and “soft”. “Hard” inquiries affect your credit score when you make a credit-based application, such as for a new credit card, to obtain a loan, approval to rent, etc. These types of inquiries make up 10% of your credit score. They only affect your score for up to 12 months while being completely erased from your credit report after 24 months. One or two inquiries won’t affect your score too badly, however, multiple within a short period of time can cause your score to drop. By keeping credit applications to a minimum you will help maintain a good credit score. When checking your own credit report, also known as a “soft” inquiry, it does not affect your score.

  1. Types of Credit: 10%

There are two separate kinds of credit accounts, installment loans and revolving accounts. You will have a better credit score if you have both types of accounts on your report because it shows you are able to handle a variety of credit types. Once more, having a diverse set of loans, like a student loan, car loan, or mortgage along with credit cards, will give you an even higher score. Don’t fret though, since it is only 10% of your score, not having both types of credit won’t destroy your credit score.