Your credit score is only a three-digit number. But, this three-digit number is one of the most valuable and important assets you own. Life, by someone with a bad score, is not the same as with someone who thankfully has a good credit score. It is important to know which factors affect your credit score. But, in my opinion, it’s just as important to know which factors do NOT affect your credit score. Let’s focus on the factors that matter most!
What Is Not Significant In Calculating Your Credit Score
- How often you open and close bank accounts
- If you pay your rent on time
- Whether you disputed credit card charges
- The place you live
- Your age
- Your marital status, race, or religion,
- A disability, if you have
- Public assistance, if you receive
- Your job and how much you earn (its no difference if your homeless or a millionaire)
- Child support obligations, if you have
- Whether you are in credit counseling
- Interest rates on your credit cards or other loans
- Credit inquiries you have made to view your credit report
- Information that does not show how your credit report. Or, Information that is no longer on your credit report
- Credit inquiries that are older then 12 months even if they still show on your credit report.
- Credit cards that were closed in good standing – even if it states “closed at credit grantors request”
What Is Significant In Calculating Your Credit Score
Do not fret about the factors that do not affect your credit score. Focus rather on the factors that do affect your credit score. Here are the 5 most impotent factors in a FICO credit score.
TIMELY PAYMENTS (35%)
The first and most important factor is paying all your bills on time. Mortgage, car leases, credit cards, loans, etc. all get reported to the credit bureaus. Therefore, be sure to be on top of all of your bills all the time to ensure that they get paid in a timely manner
CREDIT UTILIZATION (30%)
Credit utilization is how much of your credit line you spent. Never spend more than 9% of your credit line on each individual personal credit card.
(Most business credit cards (unlike personal cards) i.e. Amex Open, Chase Ink, etc. do not report to the credit bureau (so long as you’re not late on the payments) so they can be maxed out without a problem).
You can read more about credit utilization here.
CREDIT HISTORY (15%)
Credit history is the length of time you had credit. The older your credit is, the better.
You can read more about credit history here
CREDIT MIX (10%)
Credit mix is how many types of credit you’re able to juggle (the more the better). It is beneficial to have a total of five active trade lines with a mix of installment loans and revolving credit.
Examples of installment loans would be; mortgage loans, car loans, car leases, or any loan which has the same fixed amount to be paid every month.
Examples of revolving credit would be a credit card, line of credit, or any loan that does not have a fixed amount that needs to be paid every month.
You can read more about the credit mix here.
New Credit (10%)
When you get approved for a new credit card your score may go down a bit due to the new tradeline. This effect can last up to six months from the date you got approved.
Another factor of new credit is credit inquiries. Each time a credit pull is done, your score may go down a bit due to the new credit inquiry
You can read more about credit inquiries here
Now that you know what information contributes to your credit score, you can work on being on top of those things to keep your score healthy.