A credit score is a powerful indicator in assessing the economic status of an individual. The lenders and banks mainly utilize it before providing you the loans for different purposes. Several businesses have started to use a credit score to make decisions about giving loans to individuals. Through the credit scores, lenders also evaluate your future capability to pay back loans and determine the risks of loan money. It also provides the basis for setting the interest rates on your loans and credit cards and deciding whether to approve the request of a credit card. Companies that give car insurance also use the credit score to set the rate of monthly installments. Utility companies also evaluate a credit score before establishing new services for you. To offer a job, a promotion, or to increase your salary package, some employers also consider credit history.
The payment history comprises 35% of the total credit score. The way you manage your payments impacts the credit score. Payment issues such as bankruptcy, charge-offs, foreclosure, and repossession can have adverse effects on credit score. Timely payments of your bills can positively affect your credit score and prevent you from having future difficulties in applying for multiple types of credit.
Level of Debt
Your debt level is 30% of your total credit score. It happens that despite your timely payments of bills, your requests for credit cards and loans can still get rejected due to your debt level issues. The calculations of credit scoring like the FICO score cover a few factors that impact your credit scores, such as the overall amount of debt, ratio of credit card balance and credit limit, and the association of total loan amount and your loan balances.
Age of Credit History
Your credit score also considers the period for which you have been using credit. The age of your credit history includes the average age of all the accounts in your possession and your older account’s age. It comprises 15% of your credit score. The older credit age is beneficial for credit scores as it shows that you have a vast experience of handling the credits. On the other hand, new accounts present on your record history harm your credit score and decreases the credit age. In this scenario, the opening of several new accounts is typically not suitable for loans or insurances. However, if you manage your timely payments, it would not have many effects on the credit score.
Types of Credit Used by you
The FICO formula also uses your types of credit while determining our credit score that whether you use a mixed kind of credit or not. Types of credit mainly cover 10% of the total credit score. There are two major types of credit accounts, which are installment loans and revolving accounts. Suppose you have both types of credit accounts than it would positively affect your credit score. It indicates that you have the experience of various kinds of accounts, which is beneficial for your credit score. However, if you do not have any of the accounts, it would not affect your credit account due to its lesser percentage. Other accounts include store accounts and mortgages.
Every time you apply for the loan, credit card, or insurance with the requirement of credit check, then an inquiry shows on your credit account, which shows your credit-based application. It also encompasses 10% of your credit score. Few queries do not have much impact, but when the number increases from two within a shorter period, it costs tens of points and affects the credit score. For this purpose, make fewer applications at one time and this can prevent you from this issue. Fortunately, the inquiries made during the last 12 months are considered suitable for the credit score. Note that bookkeeping is an effective way to check your credit score by keeping records of financial matters.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.