What factors influence your credit score?

Are you trying to build your credit? Your credit score is a major indicator of your overall financial wellbeing. It plays a role in every major financial landmark, such as a mortgage approval, credit cards, and other loans. Your credit can impact the interest rates you can secure, which affects the amount you save and spend. With all that in mind, it’s important to understand how your credit is determined, and the factors that influence your credit score. Here are some of the big players involved in your credit score, and why they matter!

The length of your credit history

Your credit history is one of the most important factors that influence your credit score. This is because it shows lenders how well you have handled your payments over time, and whether you are a responsible borrower. It considers all of your accounts, and how you manage them. The more credit history you have, the more accurate your score will be, since it is based on a larger set of information. If you only recently started using credit, it will take some time to build. Be patient with this process! If you are responsible with your credit, it will start to increase as time goes on. If you have old accounts you don’t use, it might be worth keeping them open, as they are proof of your credit history and can help build your score.

Your payment habits

This factor is arguably the most important when it comes to your credit score. The way you pay your bills is the biggest indicator of the kind of borrower you are. If you consistently make your payments on time, and always pay at least the minimum amount, you are in good shape! However, if you tend to make late payments, or miss them entirely, this will have a negative impact on your credit. Try your best to always make your payments on time, and always pay at least the minimum. Make sure all your payments are covered each month before you start paying extra attention to any single piece of debt. This will help you avoid late fees, which cost you more money and can damage your credit.

The amount you owe

The amount you owe across all your accounts also plays a role in your credit score. Unpaid  balances can indicate you do not have the financial resources to pay your bills, especially if this occurs on multiple accounts. Another potential risk here is pushing yourself to your credit limit. Even if you make your payments on time, lenders may think you are at capacity and cannot reliably take on more debt. High debt levels make it tricky to take on another loan, and can give you a hard time when it comes to paying them off. If you have the resources to do so, we recommend paying off more than the minimum amount each month so you can clear your debt away faster. 

Your utilization

This refers to your credit utilization, which is the amount of credit you use versus what you have available. For example, if you tend to spend $3000 each month with a $6000 credit limit, your utilization sits at 50 per cent. Generally, keeping your utilization below 40 per cent is ideal. This shows lenders you have control over your debts, and that you could take on more debt responsibly. You don’t want to seem too dependent on your credit, which can turn some lenders away. 

Improving your credit score can take time, and it might take some practice to get used to maintaining a good credit score. However, understanding the key factors that influence your credit score is an important place to start! The more you know about your credit, the more you can build up your profile and access the opportunities that come with a healthy credit score. If homeownership is on your radar, be sure to reach out to a mortgage broker as well! We can work with you to find the mortgage product that matches your needs.

If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.