It is all about the credit score. It is one of the most important factors that will decide whether you can lend more money or not. To ensure your creditworthiness, the company checks for the following things:
- Payment history
- Amount owed
- Length of your credit history
- Credit mix
- New credits
According to the Fico score, all these parameters have some weight that helps a lender approve or reject your loan or credit card request. Rather than understanding the 100+ factors, you need to understand these 5 factors that can affect the credit score to ensure your creditworthiness to the lender.
We will share some tips and tricks in the next section to manage the credit card report and increase lending power. These will also help you to save your money that we spent to repair our credit.
Payment history: 35%
Payment history counts the delays in paying your monthly credit card fee. Out of 100, this factor accounts for 35% of your credit score. If you are late in paying the fee on your existing credit card, it will affect your credit score heavily.
How does payment history affect our credit score?
The company examines the delays and their duration here. If a person makes it a habit to pay their installments after the deadline, the company will flag them as less creditworthy for future loans.
The paychecks show the seriousness of the payment history. If we borrow a loan from a creditor, then the bank checks how much you delay the fee after the deadline. If you delay it for a few days, it will not affect the credit score at large.
Additionally, if you delay it for more than 30 days, the bank will charge you the late fee and add that delay to your payment history. You have to pay the charges, and you also become less creditworthy to borrow more loans.
The company also records the person’s behavior. If you make your payments occasionally, the company will understand your situation and help you maintain your credit score. If you repeat this behavior continuously, the company will drop your financial score to alarm other financial institutions before giving you any favors.
One of the 5 factors in determining your credit score is the amount you owe the lending institutions. It accounts for 30% of the person’s total credit score. The excess use of the credit card will cause damage to your credit score. The company will flag you as a financially weak individual.
How does the amount owed affect our credit score?
The first thing that determines the creditworthiness of a person is their spending. If a person spends more than 30% of the credit card limit, it increases the chances of a drop in credit scores. It alarms the bank that you are using their money only to survive.
Secondly, sometimes you take a loan for a high amount, and dependence on the credit card can lead to hard inquiries. Your ability to manage them for upcoming loans will be hampered once they are listed on your credit report. Credit repair services can be of assistance to you, but sometimes they are ineffective.
Length of the credit history: 15%
Length of the credit history is one of 5 factors that can affect the credit score. In simple terms, the length of your credit history can help you manage problems more easily without the help of any credit repair services. The longer your history, the longer you can apply and be approved by any lender.
How does the length of the history affect credit score?
If the history is long, it takes hard work to change it. Additionally, it can affect the credit report in two ways. If you have a good credit history, a small mistake can’t affect your credit score in the way it should.
On the other hand, it is difficult to change a bad past that dates back five years. Although it takes time and costs money, the credit repair service can be helpful. It is better to avoid large mistakes to make a long, good history.
Credit mix: 10%
Credit mix is one of the 5 important factors that can affect the credit score. We need to consider while using a credit card. The intensity of the credit mix is low as compared to other factors, but it is important to understand it to maintain the credit score.
How does the credit mix affect the credit score?
Suppose you have taken out different types of loans and have to pay their installments. The lender will check the amount of the loan you borrow and the duration between loans. He also compares the record of repayment of the loans within due time.
All these things make it clear to the lender that you are struggling with your finances, temporarily or permanently. If the situation proves that you are permanently delaying the payments, you can’t pay the loan you borrowed in the future.
In this way, the lender will refuse to approve any type of loan request. The credit score also goes up, which can lead to the hard inquiries that no one likes to face in their lives. So balance your finances to save on the costs you will incur to avoid inquiries.
- If late payment damages the score, pay your finances before they become due. It will help to quickly eradicate the effect of that mistake on your credit report.
- Avoid spending more than 30 percent of your credit limit, and if you do, pay the installment as early as possible before the bank records it in your credit report.
- Avoid taking loans when they are not needed; the complete dependence on the credit card will lead to bankruptcy.
These are the main 5 factors that directly affect the credit score of the customer. You need to ensure that you are taking care of these points. One thing we need to remember is that soft inquiries are not part of the report. We need to respond the questions asked by agents to avoid inconvenience.
Sometimes, you are cautious about maintaining your finances, and you need a consultant who will help you repair your credit score. Incite Strategies is one of the credit repair companies that will not only help you but also provide courses to help you understand the reasons why your credit score goes up.
You can book a free consultation to discuss your credit report issues. The qualified team will provide solutions that will increase your creditworthiness in the business world. It will help you approve your loans in the meantime.