Five Factors that Affect Your Credit Score

Credit scores are a mystery that can have a huge impact on your life.  

They affect everything from whether or not you get a loan, to the interest rate you will ultimately pay. 

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Linda Ferarri, an expert in credit remediation from the Credit Resource Corporation recently spoke with lenders about the factors that affect credit scores.  Felicia Holden, a mortgage loan officer with the Cape Cod Five Cents Savings Bank, shared it with our office of Kinlin Grover Real Estate agents, and with her permission I'll now share it with you.

1. Payment History 35% of your score
The largest percentage of your score is determined by how you pay your bills.  Are you on time?

2. Amount Owed 30% of your score
This involves installment plans (5%), and revolving credit (25%).  To improve your score, keep balances under 30 to 35 percent of your credit limit.  And to maintain your score, never go above 50 percent of your limit at all times. Going over 50% for even two to three months is a red flag and that can drop your credit score 80 points.  

3. Applying for New Credit 10% of your score
This one can hurt. No doubt you've heard that a number of credit checks can damage your credit.  There are "soft" inquiries pulled online by yourself, prospective employers, utility companies and existing creditors. "Soft" inquiries don't hurt you.  
The "hard" inquiries do and they come from loan or mortgage lenders who qualify you for the new loan.  You get a 14 day "window" of opportunity for various lenders to check your credit without penalty to your score. 
Furthermore, the lower your credit score, the greater the pain by the hard inquiries.  If your score is in the 700s, a hard inquiry will lower it two to five points.  If you're below 620, your score dips 20 to 25 points.  Ouch.

4. Length of Credit History 15% of your score 
This is determined by how long you've had credit and your most recent activity.  It also considers changes in address and in names.  It assumes that responsible individuals pull their own credit score from time to time and correct inaccurate personal information attached to their name. 

5. Mix of Credit 10% of your score
The ideal configuration is to have one installment loan such as a mortgage or auto loan, and two or three credit cards.  Without a correct mix of credit your score will never climb above 680 or 700.

Talk to your lender if you have any concerns about this.  They're a helpful and knowledgable bunch who are happy to assist. 

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FIVE FACTORS THAT AFFECT YOUR CREDIT SCORE