What are the most important Credit Factors?

Date Posted: March 2, 2023
By: Maggie Marques

Credit factors matter. A good credit score is essential if you want more accessible access to loans and mortgages. It is also beneficial to have good scores when you want to have reasonable interest rates on loans, and it is crucial when applying for credit cards.

To evaluate your creditworthiness, financial agencies will look at different credit factors such as:

  • Payment history
  • Credit card use
  • Derogatory marks
  • Credit age
  • Total Accounts
  • Hard inquiries

Important Credit Factors

What are these factors, and why do they matter? These aspects are classified into High Impact, Medium, and Low Impact. Awareness of its importance will help us prioritize how we deal with our finances. Here’s a brief rundown of each factor:

  1. Payment history (high impact). This factor accounts for 35% of your credit health status. This will show your creditors if you pay on time, your delinquent accounts, and your loans and card balances. Late payments and defaults create a severe negative impact on your score. This will result in higher interest rates and limited access to future credits.
  2. Credit Card Use (high impact). This accounts for 30% of your score. Using more than 30% of your limit tells creditors you have a higher risk of defaulting on your payments. This, in turn, lowers your credit score. The goal is to go below 30% as much as possible. But it would be best if you showed that you are using it and don’t exceed 30%.
  3. Derogatory Marks (high impact). When you see words like bankruptcy, foreclosure, and collection on your report, expect difficulty accessing loans and future applications. These derogatory marks will negatively contribute significantly to your score.
  4. Credit Age (medium impact). The longer your history, the better it is for you. Your credit age will tell your would-be creditors that you are stable and can be trusted responsibly using the funds you have. It accounts for 15% of your score. The longer you have established your account history, the better it can help you improve.
  5. Total Accounts (low impact). As they say, don’t put your egg in one basket. The same is true regarding the diversity of your accounts as well. It is beneficial if you have cards, mortgages, and loans. Although Total Accounts only comprise 10% of your FICO score, it can still help pull it up.
  6. Hard Inquiries (Low Impact). This factor belongs to the low-impact category but should not be taken for granted. Although it only makes up 10% of your FICO score, it plays a big part as your possible lenders assess your creditworthiness.

In conclusion, maintaining a good score is essential for your financial stability. You get more significant access to reasonable loan rates if you are financially stable. So keep on paying your bills on time and manage your finances well. Take note of the credit factors listed above to guide you.

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