What Determines Your Credit Score?


What Determines Your Credit Score


When you approach a potential creditor, know that if they haven’t already looked at your credit score, they certainly will.


The most important factor that goes into calculating your credit score has to do with payment history. For the most part, it’s a simple matter of “Do you make your payments on time?” Late payments can lower your score significantly.


The next important factor involves your credit utilization ratio. This is a ratio of how much credit you are using compared to the amount of credit available to you. A high ratio will negatively affect your score. Some say the ideal ratio is around 10%.


Another factor that affects your score, though not as dramatically as payment history and credit utilization ratio, includes the length of your credit history. How long have you been taking out credit and paying it back in a timely fashion? Potential creditors want to see a history of responsible credit use.


Taking out different types of credit helps your score and conversely, a lack of diversity hurts it. Loan providers also get nervous when you’ve suddenly taken out a bunch of available credit. This indicates you may be in crisis and that will negatively affect your score.


Be ahead of the game by always being aware of your score. You will also be more empowered by knowing what determines your credit score.


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