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What factors impact your credit score the most?

When you think “credit repair”, you are probably thinking about way that you can raise your credit score so that you can qualify for a loan you want to apply for. In order to understand how to raise your credit score and repair your credit, it is important to understand the factors that go into calculating your credit score. The more you understand the factors that go into calculating your credit score, the easier it is to develop a sensible approach to credit repair. Each credit score model varies but we have a general idea of how FICO and other scoring models work.

Payment History – Around 35% of your total credit worthiness is measured by your payment history. This indicates that your past payment history seems to be the strongest indicator of your future ability and willingness to make timely payments to a creditor. The best credit repair companies typically spend most of their efforts helping you improve this part of the credit score equation. They can’t go back in time and help you pay your bills on time, but they can work with credit bureaus and creditors to remove misleading information and negative items that don’t accurately reflect your credit worthiness.

Credit Utilization – Credit utilization is measured as a percentage of total revolving debt divided by your total credit lines available. Credit score models weight your existing debt utilization at around 30% of your total score. If you are close to your total credit limit every month that might indicate to a creditor that you are living beyond your means and don’t manage your finances very well. A low credit utilization shows a creditor that you can easily take on more debt and manage it wisely. While some credit repair services may also offer debt consolidation or debt settlement services, credit repair typically happens after the damage has been done and there aren’t any outstanding payment issues.

Credit Length – How long you have had credit extended to you makes up about 15% of your credit score. Typically this is measured by the average length of time your various tradelines have been extended to you. That is why closing a credit card account or other tradeline can negatively affect your credit score. This factor in your credit score is a waiting game that may negatively affect the credit score of younger adults or those who use cash for most transactions.

New Credit – Ever wonder why applying for new credit can hurt your credit score? It is because applying for new credit and adding additional credit can affect up to 10% of your credit score weighting. The negative impact is more short-term than your payment history or credit utilization, but you might want to think twice before applying for a new credit card if you are thinking about refinancing soon.

Credit Mix – 10% of your credit score is also affect by what kind of mix of different credit you are using. Creditors are looking for someone with a balanced credit life. Having revolving credit lines and installment loans may indicate that you are more experienced using credit are have a lower risk of default for the creditor.

The way that your credit score is calculated may be vary depending on the source (FICO, TransRisk, VantageScore) and even these different models change their proprietary formulas from time to time but the above guidelines will continue to hold true as you try to improve your credit score.