What Affects Your Credit Score?

When you apply for a loan or a line of credit, your lender will use your credit score to determine if your financial history suggests that you are eligible for additional credit. A high credit score allows your lender to offer more flexible terms and lower interest rates, as they will be more certain that you will repay the loan or credit line in full. But how is your credit score actually calculated?

What is a credit score?

Your credit score is a number that represents your creditworthiness. Lenders use credit scores to determine whether you're a good candidate for a loan and what interest rate they'll charge you.

Generally, the higher your credit score, the lower the interest rate you'll be offered on a loan. That's because people with high credit scores are considered to be less of a risk than those with lower credit scores.

How your credit score works

Credit scores are calculated using information from your credit report. This information includes things like your payment history, how much debt you have, and whether you've had any recent bankruptcies or foreclosures.

The most common credit scoring system in the United States is called FICO Credit Scores. FICO Scores are used by 90% of lenders to make credit decisions. Your FICO Score is a number between 300 and 850. The higher your score, the better your credit looks to lenders. A score of 700 or above is considered good, while a score of 800 or above is considered excellent.

Lenders don't just look at your credit score when considering you for a loan. They also take into account things like your employment history, income, and debts. But your credit score is still an important factor in the loan decision-making process.

How to check my credit score

There are a few ways to check your credit score for free. One way is to look at your credit report from each of the three major credit bureaus: Equifax, Experian, and TransUnion. You can get these reports once a year for free through AnnualCreditReport.com.

Another way to check your credit score is to use a credit monitoring service. These services usually have a free trial period, so you can sign up and check your credit score without paying anything. Just be sure to cancel before the trial period ends, or you'll be charged for the service.

Finally, you can check your credit score directly through some credit card issuers and financial institutions. They will often give you a free credit score as part of their credit monitoring services.

Factors that effect your credit score


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Most lenders use a version of the FICO Credit Score, with different types of loans (such as auto loans, home mortgages, and lines of credit) using different variants of this main score. Five factors affect your credit score:

  1. Credit History: 35%
  2. Credit Utilization Rate: 30%
  3. Length of Credit History: 15%
  4. Credit Mix: 10%
  5. New Credit: 10%

We provide strategic ways to improve your credit score by addressing each factor that affects it below, but be sure not to neglect any one strategy when working to improve your credit score, as they all contribute to your score. Here's what affects your credit score:

Credit score factor #1: Credit history

Your credit history builds up to 35% of your credit score: over the past seven years, how often did you make your loan or credit payments on time? In addition, foreclosures, bankruptcies, or liens can count against your credit history.

How to improve your credit history

Make a commitment to paying your credit and loan payments in full and on time. Budgeting will help you get there, but automating your payments and consolidating your debts to a single line of credit can make your credit history much easier to manage. You should also request a free copy of your credit report and review it for any errors. Reporting an error on this report can immediately improve your credit score.

Credit score factor #2: Credit utilization rate


credit card with document

Thirty percent of your credit score comes from your Credit Utilization Rate, which is the amount of debt you owe divided by the amount of loans and credit that lenders have extended to you. If your credit card has a credit limit of $1000 and you currently owe $200 on the card, your utilization rate will be 20%. Lower Credit Utilization Rates drive higher credit scores.

How to improve your credit utilization rate

To improve your Credit Utilization Rate, you can attack the problem at two ends. First, pay down your debts — even beyond your minimum payments — to reduce the amount you owe. Second, ask your credit card company if you can raise the limit of your current credit cards: by increasing the amount of credit you are offered, you reduce your Credit Utilization Rate, which drives your credit score higher.

Credit score factor #3: Length of credit history

Every year that you have open lines of credit adds to your credit score — more so when you can show a history of on-time payments. Multiple lines of credit count as separate credit history lengths and can also drive up your credit score. Your length of credit history is a factor that provides up to 15% of your credit score.

How to improve your length of credit history

The best time to add a line of credit is yesterday, but today will do. You should only open new lines of credit when you can afford to pay any debt on those credit lines: but if you are confident that you can, opening a new line of credit today adds the additional credit history length that will improve your score tomorrow.

Credit score factor #4: credit mix

How diverse are your lines of credit? Aside from your credit cards, do you have retail credit cards? Do you have an open auto loan or home mortgage? A healthy mix of credit across different types of your expenses demonstrates a mature approach to financing and gives your new lenders less to worry about. This factor builds up to 10% of your credit score.

How to improve your credit mix

Adding a new line of credit that you can pay off in full and on time is the best way to add diversity to your financial profile. Provided that you can stay within your budget, credit lines that can be reliably paid off always contribute to higher credit scores.

Credit score factor #5: New credit


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Opening a single new line of credit will likely help you, as it adds to your credit mix, starts to build a new length of credit history, improves your Credit Utilization Rate, and — with on-time payments — builds a strong credit history. But opening multiple lines of credit at once suggests to lenders the type of risky behavior that they would prefer to avoid. A large amount of new credit will adversely contribute up to 10% of your full credit score.

How to improve your new credit

Improving your credit score is more about demonstrating responsibility than opening up multiple lines of credit all at once. So take your time to work through the steps above before you open a new line of credit and take care to manage the current lines of credit that you have to show lenders that you are a safe bet.

Other factors that positively affect your credit score

Here are some other ways you can build your credit score:

  • Review your credit report and correct any errors.
  • Pay your bills on time and over the minimum payment.
  • Request an increase to your credit limit on your credit cards.
  • Don't close any unused accounts: it is better to have unused credit on your report and an additional line of credit than to remove it from your report.
  • Have a family member add you as an authorized user to their account.
  • If you drive, open up a gas card and pay it faithfully.
  • Arrange with your landlord to have your rent paid online: these services can add your monthly rent payments to your credit report.

You don’t need a good credit score to get a loan

Luckily, you don’t need good credit to get approved for a loan. Many lenders, like Advance America, have less strict credit score requirements and will consider additional factors like income and employment history when making their approval decision. This means borrowers can still get approved for a loan with poor or fair credit. Better yet, applying for an Advance America loan won’t impact your FICO Credit Score. So, you can easily get the cash you need without worrying about your score taking a hit.

Advance America offers payday loans, installment loans, title loans, and lines of credit that borrowers can apply for in-store or online from the comfort of home. If approved, you can receive the funds you need as soon as the same day you apply. Visit AdvanceAmerica.net today to learn more about the loans we offer.

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