Your credit score is a very important indicator of your financial wellbeing and creditworthiness. It is vital to understand what impacts your credit score, so that you can maintain a positive score and be able to access credit at attractive terms. Here, we explore the 4 top factors that are taken into account when calculating your credit score.
1. Payment History
Your payment history is the most important component of your credit score and is reflected in 35% of your score. It is a record of how regularly and how promptly you have made payments on your outstanding debts.
2. Credit Utilization
Credit utilization makes up another 30% of your credit score. It is a measure of the ratio of your outstanding debt vs your total credit limit and it should ideally be 25% or lower. If this ratio is higher than 30%, it indicates to potential lenders that you are over-leveraged or that you have taken on too much debt and can have a negative impact on your score.
3. Credit History Length
The length of credit history also impacts your credit score and accounts for 15%. The longer your credit history, the better; as it is an indicative of a sustained record of managing credit responsibly.
4. Credit Mix
Credit mix is the variety of different types of credit you currently have, such as credit cards, car loans, mortgages, and more. This accounts for the last 10% of your credit score, and it is important to have a mix of credit types in order to demonstrate that you can handle different types of credit responsibly.
To ensure a strong credit score, it is important to maintain a good payment history, keep credit utilization low, keep your credit history lengthy, and diversify your credit types.
We hope you found this article helpful and wish you luck in maintaining a positive credit score!