5 Factors that make up a credit score
A credit score is derived from a scoring system that takes identifying factors such as your name and your social security number, links it to what you have or have not achieved financially, and determines a predicted pattern that ranks your credit risk. This grade or score you are given tells creditors what level of risk they would be taking on if they decide to lend any money to you, as well as how much they can safely extend to you. Several factors can help or harm your overall credit score including: slow or missed payments, student loans (Whether your loan is federal or private) and your debt to balance ratio, just to name a few.
Types of Credit
Having a combination of revolving (credit cards) and installment (mortgage or car payments) credit along with an excellent record of payment will only improve your score. It isnt recommended that you open several new accounts just to add diversity to your credit portfolio as this only influences a small percentage of your score.
Amounts Owed
Keeping a higher line of credit while maintaining a low credit balance each month is the best way to boost your score. Don’t be afraid to use your credit, because without it you will have no score, but keeping your balance below 30% of your allowed credit is recommended.
Length of Credit History
Having an established credit history and maintaining a good record of payments on old accounts helps raise your score significantly more than if you were to open a new account. Using your accounts occasionally and conservatively will keep your accounts active and contribute to a high score.
New Credit
Do not open new accounts just to transfer balances for an introductory rate, or to get a discount at a store. In addition to possible lowering your score, these offers often have traps that will end up costing you more than what you hoped to save. You can, however, use these offers to leverage a lower rate with your existing card company.
Payment History
It may seem somewhat obvious to say this but missing a payment on any line of credit can be significantly damaging to your credit score, missing a mortgage payment alone can drop a score as much as 100 points! To avoid missing a payment set up automatic payments and keep an emergency account to cover any unexpected expenses.