New Credit Youve Taken On
The last 10% of your credit score is determined by the new credit youve taken on. This includes the types of new credit youve opened, how many lines of new credit youve opened, and if youve opened multiple lines around, roughly, the same time. Several new lines opened in a short amount of time may indicate that youre about to take on a lot of debt, which may threaten your chances of loan approval.
Lets say youre planning to buy a home. You take out a credit card at Home Depot because the house youve got your eye on needs some renovation, you take out another credit card at Sears because you want to buy some big-ticket appliances, and you open up another line of credit with Art Van Furniture to finance a brand new bedroom set for this new home. When a lender sees this type of activity, they may think youre getting ahead of yourselfyoure putting items on credit that you cant afford before you even buy the house theyre intended for. If you just opened up a lot of new credit, a lender will see it and may think you dont have the money to pay for all of these thingsand their loan is one of them.
We hope this article helps you figure out what affects your credit score. This blog post is not intended to provide credit or financial advice. We recommend you consult legal counsel or a financial advisor when making decisions that may affect your credit.
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Can Service Accounts Impact My Credit Score
Service accounts, such as utility and phone bills, are not automatically included in your credit file. Historically, the only way a utility account could impact a credit score was if you didn’t make payments and the account was referred to a collection agency.
But this is changing. A revolutionary new product called Experian Boost now allows users to get credit for on-time payments made on utility and telecom accounts.
Experian Boost works instantly, allowing users with eligible payment history see their FICO® Score increase in a matter of minutes. Currently, it is the only way you can get credit for your utility and telecom payments.
Through the new platform, users can connect their bank accounts to identify utility and phone bills. After the user verifies the data and confirms they want it added to their credit file, they will receive an updated FICO® Score instantly. Late utility and telecom payments do not affect your Boost scorebut remember, if your account goes to collections due to nonpayment, that will stay on your credit report for seven years.
How Credit Scoring Works
In a nutshell, credit scoring uses computerized algorithms designed by credit reporting agencies. These algorithms calculate results on a numerical scale from 300 to 850, known as the FICO credit scoring range.
As you can imagine, scores on the higher end of the scale represent a good risk level to lenders. In contrast, people whose scores are on the lower end of that same scale will find it challenging to get accepted for borrowing.
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Your Bill Payment History
Payment history determines 35% of your credit score. In fact, how timely you pay your bills affects your credit score more than any other factor. Serious payment issues, like charge-offs, collections, bankruptcy, repossession, tax liens, or foreclosure can devastate your credit score, making it almost impossible to get approved for anything that requires good credit.
The best thing you can do for your credit score is to make your payments on time each month.
The Biggest Factor In Different Credit Scores
Lenders use the FICO Score in 90% of lending decisions. VantageScore is another well-known credit scoring model created originally by the three major credit bureaus, Equifax, Experian, and Transunion. Here are the various factors that impact both of them:
|Highly impactful||Amounts owed||Age and type of credit|
|Moderately impactful||Length of credit history||% of credit limit user|
Total balances / debt
|Recent credit behavior|
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What Counts Toward Your Score
Your credit score shows whether or not you have a history of financial stability and responsible . The score can range from 300 to 850. Based on the information in your credit file, major credit agencies compile this score, also known as the FICO score. Here are the elements that make up your score and how much weight each aspect carries.
Credit Score Impacts Insurance Credit Score
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Your insurance credit score is based on your credit score rating, says Investopedia. So, just like your credit score decides your odds of living a financially secure life, your insurance credit score determines your probability of getting the desired insurance rates. So, when you apply for an insurance policy, the company extends the coverage to testify your profile:
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Instantly Boost Your Score
Each company may consider different information when working out your score and use a different formula. For example, your credit report held by each of the main credit reference agencies may contain different information. Firms also differ in how many points are awarded for each piece of relevant information, depending on the formula used and any lending policies. Scores are often expressed using different ranges, meaning they wonât usually be directly comparable.
The Experian Credit Score is completely free and gives you an indication of how companies may view your credit report. Itâs represented as a number from 0-999, where 999 is the best possible score, and is based on the information in your Experian Credit Report. You can check it without paying a penny, and itâll be updated every 30 days if you log in.
What Is A Credit Inquiry
Anytime someone checks your credit report including yourself, lenders, banks or even landlords, its recorded on your report as a soft or hard credit inquiry.
Each of the three credit bureausEquifax, Experian and TransUnionkeep track of the inquiries on your report because it can say a lot about the risk you pose to lenders. While lenders arent too worried about soft inquiries because it doesnt impact your credit score, they do take caution around hard inquiries. In the lenders eye, multiple hard inquiries can indicate youre taking on more credit than you may be able to afford.
For example, according to FICO, People with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy.
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Being Registered To Vote
The electoral roll is used by credit agencies to confirm your permanent and current address, as well as where you have lived and had credit before so if you arent listed this goes against you and your credit score.
Its so easy to register to vote, so if you know you arent on your local electoral roll at your current address then register to get things in order. You dont have to actually vote if you dont want to and no one will want to know your political views, but its important you register to ensure you can continue to take on credit without any issues.
Monitor Your Credit For Free With Creditwise From Capital One
Itâs important to regularly monitor your credit if youâre trying to maintain your credit or improve your credit scores. Monitoring your credit can help you see exactly where you standâand how much progress youâve made.
One way to monitor your credit is with . CreditWise gives you access to your free TransUnionÂ® credit report and weekly VantageScore 3.0 credit score anytime. And using it wonât hurt your scores. You can even explore the potential impact of your financial decisions before you make them with the CreditWise Simulator.
You can also get free copies of your credit reports from all three major credit bureausâEquifaxÂ®, ExperianÂ® and TransUnion. Call 877-322-8228 or visit AnnualCreditReport.com to learn more. Keep in mind that there may be a limit on how often you can get your reports. You can check the site for more details.
Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.
The CreditWise Simulator provides an estimate of your score change and does not guarantee how your score may change.
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What Has The Most Negative Impact On Your Credit
Just as paying on time can help your credit score, paying bills late can be extremely detrimental to your credit score. Usually, a payment is late after it is 30 days past due. A late payment will stay on your credit report for up to seven years. It will negatively impact your credit score during that time.
The later your payment, the more it can impact your credit score. If you are worried about making a payment on time, the best bet is to contact your creditor or lender immediately and see what options they might offer. Additionally, bankruptcies can cause a huge drop in your credit score depending on the type of bankruptcy, it can stay on your credit report for up to 10 years. Its important to understand all the implications of bankruptcy before you file since the financial and credit implications are far-reaching.
Keeping high balances on your credit cards is also something that will negatively impact your credit score. This is known as high credit utilization. It may lead lenders to determine that you arent able to take on more credit because they see you as a higher risk to default or miss payments.
What Type Of Credit Products Are Listed On My Report
There is a wide range of things that contribute to and affect your score, including:
- Utility bills Your payments to your water and gas and electric providers may be listed on your report.
- Mortgages This is one of the biggest credit products to feature on your report and your payment history will be available for lenders to view.
- Personal loans If you take on a loan, this will sit on your report and impact your score.
- Car finance If you take on a finance deal, or a PCP loan with a car manufacturer, this will be listed.
- Mobile phone contracts Phone contracts are classed as credit deals and so the repayments you make will be listed.
- Buy now pay later agreements Any financial contract you take on will be listed, including repayment schemes.
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The Length Of Time Since You Last Applied For Debt
Every time you apply for a loan or credit card, this creates a hard inquiry on your credit report which lowers your score by several points. Over time, these inquiries fall off, and other factors may raise your score again. In general, its not a good idea to apply for too many new loans too close together.
How Your Credit Score Influences Potential Lenders
When you apply for a credit product, such as a credit card or a loan, the first thing the company you will do is check out your credit report. This holds all of the important information on you and your financial history, including where you have lived, what credit accounts you have open and whether you have had any issues with repaying debt in the past.
The report itself doesnt necessarily tell them whether to say yes or no instead they will look for warning signs such as things like defaults and numerous credit applications in a short time listed on it. If they spot any of these theres a chance they may increase the interest rate on the credit product they are offering to protect themselves or even reject your credit application.
Lenders always aim to ensure they get back their money, and so to have a good chance of getting credit, your report needs to look good to prove that you can handle your loans and credit products responsibly.
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Other Accounts Included In A Credit Report
Your mobile phone and internet provider may report your accounts to your credit bureau. They can appear in your credit report, even though they arent credit accounts.
Your mortgage information and your mortgage payment history may also appear in your credit report. The credit bureaus decides if they use this information when they determine your credit score
A home equity line of credit that is added to your mortgage may be treated as part of your mortgage in your credit report. If your HELOC is a separate account from your mortgage, it is reported separately.
The Importance Of Credit Categories Varies By Person
Your FICO Scores are unique, just like you. They are calculated based on the five categories referenced above, but for some people, the importance of these categories can be different. For example, scores for people who have not been using credit long will be calculated differently than those with a longer credit history.
In addition, as the information in your credit report changes, so does the evaluation of these factors in determining your FICO Scores.
Your credit report and FICO Scores evolve frequently. Because of this, it’s not possible to measure the exact impact of a single factor in how your FICO Score is calculated without looking at your entire report. Even the levels of importance shown in the FICO Scores chart above are for the general population and may be different for different credit profiles.
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Types Of Credit In Use: 10%
The final thing the FICO formula considers in determining your credit score is whether you have a mix of different types of credit, such as credit cards, store accounts, installment loans, and mortgages. It also looks at how many total accounts you have. Since this is a small component of your score, don’t worry if you don’t have accounts in each of these categories, and don’t open new accounts just to increase your mix of credit types.
Length Of Credit History: 15%
Your credit score also takes into account how long you have been using credit. For how many years have you had obligations? How old is your oldest account and what is the average age of all your accounts?
Long is helpful , but a short history can be fine too as long as you’ve made your payments on time and don’t owe too much.
This is why personal finance experts always recommend leaving credit card accounts open, even if you dont use them anymore. The accounts age by itself will help boost your score. Close your oldest account and you could see your overall score decline.
What Factors Affect Your Credit Scores
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Your credit scores are determined by several factors, such as whether you pay bills on time and the length of time you’ve used credit. Understanding what factors affect credit scores helps you plan the most effective way to build your credit or protect it.
Credit scoring companies calculate your scores from data in your credit reports. While they wont reveal their exact formulas, they share the basic ingredients they use to calculate scores.
Why do you care? Because your : whether you can get a credit card or car loan, and at what interest rate whether you can buy a house or rent the apartment you want even how much you pay on car insurance and utility deposits.
Consequences Of Avoiding Bankruptcy
Debt doesnt happen overnight, and neither does debt recovery. That said, waiting too long to file for bankruptcy can cost you more in the long run.
Bankruptcy allows you to pursue debt relief under the supervision of the court and/or a trustee. There are rules and guidelines for these cases that provide a clear path to resolution and help you get back on your feet quickly and improve your credit score.
However, if you choose to figure it out yourself, you could face a different set of problems. Freestyling debt relief rarely works out favorably and can make things worse very quickly. Missed payments, loan defaults, collections, and settlements stay on your accounts for years after the fact, and if you dont take care of them quickly, recovery gets further and further out of reach.
Digging yourself out of debt also means you dont have access to trustees or attorneys who can guide you and provide insight based on years of experience. An advocate in your corner can go a long way toward debt recovery. Take control of your credit report and credit score today. The sooner the better long term.
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