Nearly two-thirds (or more) of your total credit score are determined by the first two factors on your credit report. These are debt and payment history. 15% of this is dependent on the length and complexity of your credit history. The second factor is the credit mix you have used. You will improve your score by taking care not to have high balances or making timely payments.
Payment history
If you're looking to get a loan, your payment history can make a big difference. Credit scoring models look at several factors when determining your score, including how you pay bills on time. Your overall score may be affected by late payments and the size of those payments. To avoid your score being lower, make sure you pay your bills on-time.
A late payment is a big factor in lowering your score, and is generally considered to be 30 days late. Your score will be affected if you pay late even for a few days. This mark will stay on credit reports for seven years. Although lenders will not report payments more than 30 days late, they will charge you a fee if you miss your due date.
Debt
The 30% of your total credit score that is made up of debt is important, and it accounts for 30%. You should keep track of the balances you have and what amount you can afford to repay each month. There are many factors that can affect how much debt you have. Avoid charging for things you don’t have the funds for. Your score will drop if your owing more than what you can afford.
Paying down your debt is another way to improve your credit score. Keep your outstanding balances to a minimum of 30% of your total credit limit. This shows the lender that you are responsible with debt. Your payment record is also an important factor in determining your credit limit. Lenders won't increase your credit limit if your payment history is excellent.
Mix of credit for use
Your credit score will be affected by your credit mix. You may have a good mix of revolving and installment credit, but it's not enough to simply have one type. You can manage many types of credit and still pay your bills in full every month. If you have a history with late payments, high credit usage, bankruptcy, or other financial problems, this credit mix may not be right for you.
About 10% of your credit score is determined by the type of credit you have. This mix could include installment loans as well retail accounts, corporate accounts, and mortgage loans. A variety of credit types can help lenders assess your ability to manage your finances and improve your credit score.
Credit history length
Credit history length is an important factor when building credit score. The higher your score, the better your credit history. This factor can be calculated by adding up all your accounts' ages, and then dividing these by the number you have. Eight years is the average credit history. Your credit score considers not only the total credit history but also the age of each credit account as well as the date you last used it.
A complicated algorithm calculates your credit score. It considers many factors, including the age you have had accounts. Your oldest account is used as a basis for credit scoring models.
Credit limit to reduce debt
Your credit score is composed of several factors, including the debt to credit limit ratio. Your debt to limit ratio is a percentage on your total credit. This number is used by many lenders in their scoring formulas. Lenders would prefer to see a low loan-to-limit ratio. A high ratio can signify that you are a risky borrower which could lead to lower credit scores.
Calculating your debt to credit limit ratio means dividing the total debt amount by the amount of credit that you have. A debt-to-limit ratio below 30% is a good goal. Your credit score may be negatively affected if you have a higher debt-to-limit ratio than 30%. You might not be able to buy a home or refinance an existing loan.