Why Does it Matter: What Really Affects your Credit Score
So many times we make financial decisions without researching the implications of those decisions. This is unsafe for so many reasons, but one important reason you should always consider is the effect of those financial decisions on your credit score.
The amount of your credit that is currently used: At one point, I had $3900 of credit and was using $3500 of it. My credit score was shot because of this; when I finally paid it off (in the last year), my credit score jumped 30 points, and over a course of 6 months it has jumped 100 points. Yes, it makes that much of a difference. Don’t use all the credit available to you. Once you go over 80% of your total credit being utilized, your credit score starts to decrease.
The length of your credit history: Another thing that totally shot my credit score was that I had such a short history. When it was at its worst, I had only 4 years of credit under my belt. Now I have 7, and it has increased significantly. As your credit history gets longer, there are longer periods of time to compare to. 4 months of delinquent payments (like I had) looks a lot more terrible when compared to 4 years as opposed to being compared to 7. And, since I plan on it never happening again, it’ll be a mere smudge on 20-plus years of credit.
Your payment history: This is the most obvious. If you forget one, it’s really not a huge deal. But, if you keep skipping or forgetting bills, your credit score will start to drop. Just because it’s not “credit” does not mean it does not affect your credit score. Remember, the credit score assesses how responsible you are with the credit you possess AND with making payments on that credit. If you can’t make payments on your $25 electric bill, how can a loan company expect you to make payments on a $140,000 loan?
The number of inquiries on your credit report: People do NOT realize how significant this is. If you are requesting information on your credit too regularly (most professionals suggest once or twice a year), it makes your credit dip. Why? Because if you are checking it too much, it means that you are obviously overly concerned about it, and that looks suspicious. Now, there are some banks, credit card companies, and credit unions that will track your FICO score, and they do it monthly without affecting your credit. If you are someone who is concerned about that (like I was, because of killing my credit), then these services can help you significantly; contact your bank and/or credit union and ask. Also, the government requires that you have access to a free credit report yearly.
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