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Understanding credit: 5 things that affect your credit score

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By: Amy
on 11th Oct,2013

Generally speaking, those who tend to have less money also have lower credit score ranges than individuals who make more money.
Understanding credit: 5 things that affect your credit score

As much as people would like to think that money does not make this world go ‘round, who are they kidding? Money may not rule your life, but, without it, your quality of living is not what it could be – or what you think you may deserve. Generally speaking, those who tend to have less money also have lower credit score ranges than individuals who make more money. Knowing what exact factors affect a credit score may help many individuals understand credit as a whole and then gain a better grasp on how to adjust their scores.

Payment History

It is good practice to monitor your credit score on a regular basis, you will get your score but then what? It is hard to fix something if you do not even know the factors that make up a credit score. First, your payment history accounts for a good portion of the credit score calculation. Thirty –five percent (35%) is the exact amount. This one factor alone weighs more heavily than all of the other factors. Being pretty self-explanatory, your payment history accounts for all payments sent in by you for your various accounts, if they were paid on time and the amount paid. Even if you are making minimum payments, remember it may not be doing anything other than paying your interest and buying you more time.

History also accounts for charge-offs, collection accounts, foreclosures, repossessions and things of that sort. Information will remain on your report for seven years minimum.

Overall Debt

Another item that affects your credit score significantly is the amount of debt that you carry on a daily basis (30%). This is comparing your given credit limits against what your balances are. Are all of your balances as high as they can be or are they only about 25%? This varies from person to person but definitely weighs heavily on your individual scores. The lower the percentage of utilized credit the better your score will be.

Length of Your Actual History

One would think that not having credit is a good thing. It is better than bad credit but not having enough credit is an issue as well, as this accounts for 15% of your score. There has to be a happy medium found. Some feel that if they cannot pay with cash, then they do not need to make a purchase. This will keep someone out of debt but may hinder them from getting approved for a loan that they want or need in the future.

New Credit

Now to nearly contradict what was just said, new credit can affect your score as well. Credit scores are a careful calculation of these various factors. New credit accounts for 10% of your score. Every time you decide to apply for a loan or a credit card, a note is made to the credit bureaus. Excessive applications will negatively affect your score.

Types of Credit

The last major factor which accounts for 10% as well is the types of accounts that are open on your credit. Revolving accounts and installment accounts are included. They key to improving your credit is to monitor your credit report regularly and do not have too many of one type of accounts versus the other, again a good balance of both is ideal.


If you are approved for a loan and maintain it long enough to get the opportunity to refinance, you are moving in the right direction. To get approved to refinance, your credit score has to be above the 620 range. Refinancing can be very helpful to those making payments; it may very well lower interest rates as well as monthly payment amounts. When you are able to refinance and make your payments more manageable you will likely be able to improve your score. The question is if refinancing affects your credit score! It does. This would fall under the category of hard inquiries, very similar to that of new credit inquiries. Too many can have negative effects on your score.

Credit is not just something you can forget about and assume it will be alright, it needs to be monitored and eventually when you are interested in purchasing a home or a car, you will have the credit rating to do so. If you have poor credit, you will be paying higher interest rates and find yourself in continuous debt.

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