A variety of different factors make up the diverse components that comprise a person’s credit score, which is why an individual’s experience may vary depending on their personal ability to capitalize on these opportunities or not. Here’s a list of the most important factors that affect your credit score.
1. How much debt you have
This is the top factor that affects your score. Because debt is a sign of financial risk, anyone with high levels of debt will have a much lower credit score than someone who has maintained low levels of debt over time. It is important to keep in mind that it’s not necessarily the ability to pay back a loan that matters, but rather whether you are able to predict future risk. Therefore, it’s very important not to let your debts get too high and stay consistent with payments, since late payments and missed payments will damage your credit score.
2. How much money do you make
While income is not the most important factor that affects your credit score, it is still a critical aspect of your financial health. The general rule is that the more money you make, the better off your credit score will be. The reason for this is that lenders prefer to lend to people who have more assets and less debt; people with more assets are a lower risk than those who simply have debt as their primary asset.
3. How old is your credit history is
Despite what many people think, your credit score doesn’t drop after a certain period of time but rather increases. The reason for this is that the longer you have a good track record of paying back loans and other debts, the more confidence lenders will have in you. The less risky they see you as being, the higher your credit rating will be.
4. How long does it take you to pay back your debt
Your creditor has granted you a loan and expects timely payments in return. Therefore, a creditor will be more likely to grant you further loans if you have a good track record of making payments on time. Paying back your loans on time shows that you are responsible and reliable, which creditors like. If you find yourself having trouble paying back the money on time, an additional loan may be necessary to help pay off the previous one, so that you are able to hold off creditors until your bill is fully paid.
5. How often do you apply for loans
As mentioned above, creditors like it when a borrower pays their loans back on time, which is why providers of credit are hesitant to lend cash to people who frequently request additional loans. While it is true that sometimes consumers need extra money, they need to be careful that they don’t go overboard applying for too many new loans.