Paying bills on time and not maxing out your credit limits is a well-known factor that affects your credit score, while several other factors may not be widely known. Knowing everything that can potentially impact your credit score is extremely important in helping you maintain a positive credit score.
A good credit score will help each borrower get the best loan terms and increase the chances of approvals.
A credit score will be a number that represents a person’s credit account, this number is based on their credit history. This number is commonly used by a financial institutions as a tool to help them determine the risk a borrower might present to them.
A credit score is calculated from payment history, outstanding debts, length of credit, credit account, and recent credit inquiry. Your credit score will be presented as a three-digit number 300 to 850, the higher the credit score a borrower carries the better terms they will receive because they present less risk to the lender.
While a lower credit score will be viewed as a higher risk leading to higher interest rates and even denials. A credit score is an important factor that lenders use to determine borrowers credit worthiness.
A credit score is an important part of our lives, It helps us do many things such as buy cars, own homes, take vacations, and much more. Having a good credit score can increase your chances of approval for your loan and usually get you the best terms.
Having lenders offer you good terms can save you thousands on your loans, so its important to understand all the variables that might impact your credit score:
Public records: Public records may impact your creditworthiness and your financial health. Negative public records such as bankruptcies, tax liens, and judgments against you can be a big flag to credit bureaus which will lower your credit score.
Bankruptcy is where an individual or business declared that they will not be able to pay their debt, which can stay on your record for 10 years lowering your credit score and making it difficult to obtain a loan. Another public record that might affect your credit score is tax liens which are unpaid taxes for your property or other assets.
Same as bankruptcies tax liens will stay on your record for 10 years and can cause damage to your credit score. Having a judgment against you for unpaid debts can remain on your credit for 7 years which also will affect your chances of getting loans.
To maintain a healthy credit score it’s important to pay all of your bills on time and avoid negative public records that can hurt your credit score.
Errors on credit report: Having the wrong information on your credit report can negatively impact your credit score w, affecting your ability to get a loan. Errors can occur due to reasons like data entry errors, identity theft, or creditor reporting inaccurate information. It’s important to constantly monitor your credit account to make sure all the information is accurate and up to date.
You can obtain a free credit check each year from the three major credit bureaus such as Equifax, Experian, and TransUnion by just visiting AnnualCreditReoprt.com. If you end up finding eros on your credit report it’s important to dispute them with a credit reporting agency as soon as you can, you can submit a letter to the credit bureau that contains that information.
In the letter, you need to include your personal information, details of the error, and any documents that can prove the errors. Disputing errors can take time and effort but it’s an important step to maintaining a healthy credit score.
Unpaid Debts: Having unpaid debts can play a role in your credit score. Many borrowers only think about the large debts they have such as car loans, mortgages or credit cards help them maintain their credit score.
But having small unpaid debts can affect your credit scores things such as medical bills, utility bills, phone bills, parking tickers, and other similar debts. While these might seem like they aren’t that important they can have a significant impact on your credit score if left unpaid.
One of the main factors that credit bureaus consider when determining your creditworthiness is payment history, so having an unpaid account on your credit report can play a significant role in your credit score.
Credit utilization: Credit Utilization will be the amount of credit you have compared to your credit limits. It’s suggested by credit bureaus and financial experts to keep your credit utilization rate below 30% to maintain a good credit score.
High credit utilization can indicate reliance on credit which will result in difficulty obtaining credit and can result in higher interest rates. Regularly monitoring and adjusting your credit balances can help maintain low credit utilization which will demonstrate responsible borrowing.
For example, if you have a credit limit of $10,000 it’s advanced to have a balance of $3,000 or less to keep your credit utilization ratio to 30%. Maintaining a low credit utilization will help you improve your credit score and demonstrate to the lender that you’re a responsible borrower.
Other things: Many other things can affect your credit score and it’s important to learn more about everything that can affect your credit score to avoid making mistakes. Having good credit can be super beneficial for all buyers as it will increase the chances of approvals and usually help you get the best terms.
Here are a few other things to consider that might affect your credit score age of the account, payment frequency, credit inquiries, types of credit, and much more. Many things will affect your credit, but making sure you don’t overspend and pay your bills on time will help you maintain a good credit score.
Some hidden variables that can impact your credit score include small unpaid debts, errors on your credit report, and negative public records like bankruptcies or tax liens.
You can check your credit report for errors by requesting a free credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year. Review your credit report carefully and dispute any errors or inaccuracies with the credit reporting agency.
Credit utilization is the amount of credit you use compared to your available credit limit. It can impact your credit score because lenders prefer borrowers who use credit responsibly and are not over-reliant on credit. It is recommended to keep your credit utilization rate below 30% to maintain a healthy credit score.
To improve your credit score, you can make on-time payments, maintain a low credit utilization rate, monitor your credit report regularly, and limit credit inquiries. You can also work with a credit counseling agency or financial advisor for personalized advice.
Negative items like bankruptcies or tax liens can stay on your credit report for several years, typically seven to ten years depending on the specific item and the credit reporting agency. However, their impact on your credit score may lessen over time as they age.
Disclaimer: We make every effort to ensure the accuracy and currency of our information. However, the information presented may differ from what you find when you visit a financial institution, service provider, or product site. We do not provide warranties for any financial products, shopping products, or services. When reviewing offers, please carefully read the terms and conditions of the financial institution. Pre-qualified offers are not binding. If you notice any discrepancies in your credit score or report, please contact TransUnion® directly. Our partners compensate us for featuring their products on our site, and this may affect the products we write about and their placement on the page. However, this does not influence our evaluations, and our opinions remain independent.