What Factors Affect Your Credit Score?
Have you struggled to get the money you need for a home, car, or other necessary expenses? Is a low credit score forcing you to live month-to-month? Understanding what factors affect credit score changes can help homebuyers and other loan applicants develop better credit scores.
At Priority Lending, LLC, Tucson’s trusted mortgage brokers, we provide opportunities for borrowers, even if they have imperfect credit. We’re sharing these credit-building tips so that hardworking Americans can build their financial future responsibly and increase their chances of qualifying for the loans they need.
The three credit bureaus, Equifax, Experian, and TransUnion, gather information about borrowers. The Fair Isaac Corporation uses a computer algorithm to calculate a credit score called the FICO score for each borrower. Lenders use credit reports and FICO scores to decide whether to accept an applicant and what terms to offer.
Below are the primary factors affecting your credit score.
Time
Credit rating organizations give more credence to established relationships with credit card companies, so it can take some time to build a solid credit rating. If you do not have an established credit history, applying for new credit cards and paying off balances can increase your credit score over months or years.
Debt-to-Credit Ratio
Knowing what factors affect credit scores can involve understanding some abstract concepts and math. One mathematical concept you have to know is the debt-to-credit ratio.
People in financial trouble often maintain high balances or max out their credit cards because they lack the resources to pay their balances. One metric of credit card debt that credit reporting organizations use is the debt-to-credit ratio or credit utilization ratio. A borrower who has used 100% of their available credit would pose a high risk, while 10% usage would be a positive indicator.
Late Payments
Late payments are a red flag on your credit rating. Make at least the minimum payment on all your credit cards each month to prevent a dip in your credit score.
The Credit Mix
Credit mix means having different types of credit, including installment credit and revolving credit. Installment credit, such as mortgages and car loans, involves borrowing money and paying it back in monthly payments. Revolving credit, including credit card debt, allows borrowers to draw upon a credit line as needed.
A good credit mix is an asset because it demonstrates that the borrower is familiar with the borrowing and repayment process.
New Credit Applications
Recent credit applications can lower your credit rating because they could indicate financial instability.
Get the Loan You Need with Help From Priority Lending, LLC
Speak to a loan officer to better understand what factors affect credit score and loan eligibility. Our experts at Priority Lending, LLC, can help you improve your financial situation to increase your eligibility for loans and help you manage your loan payments.
At Priority Lending, LLC, we know that maintaining a high credit score can be difficult. Call 520-531-1119 to speak with a loan officer about your financial situation or learn how to choose the right type of housing loans and other loan options that can put money in your hands.
