The question of what affects a person’s credit score (the most common being the FICO score) isn’t as straightforward as it may seem. Even those that know their credit score may not understand all of the reasons why it is what it is. There are certainly many factors that go into determining that “magic” number, which impacts our ability to reach our financial and life goals. Some of these factors can dramatically affect your credit score, while others affect it less than you might think. Additionally, some things you may not even realize can have an impact.
Let’s first take a brief look at the basic 5 factors of your credit score:
- Payment history – Whether or not you make your payments on time is the largest factor in determining your credit score, accounting for 35 percent of it. Lenders place the most weight on this because they view it as the most accurate measure of risk. That means that the way you manage your monthly payments will have the largest positive or negative impact on your credit score.
- Debt and credit utilization – The amount of credit you’re using compared to the total limits on credit accounts makes up 30 percent of your credit score. The lower your credit utilization, the more positively it will impact your score. Ideally, your total credit utilization should not exceed 30 percent.
- Length of credit history – How long you’ve had your credit accounts makes up 15 percent of your credit score. If most of your credit is relatively new, it can reflect negatively on your credit score, while accounts older than seven years will boost a credit score as long as they’re in good standing.
- Inquiries and new credit – Applying for new credit accounts comprises 10 percent of your credit score as credit bureaus track “soft” and “hard” inquiries. Too many hard inquiries can negatively affect your score. But similar inquiries within a short amount of time are generally less harmful because credit bureaus understand they’re typically a reflection of a particular event, such as shopping for a mortgage refinance or a car loan.
- Mix of credit accounts – The types of credit accounts you hold make up the final 10 percent of your score. The more diversified your credit report, the better your credit score will be. Having a number of different accounts with varying terms and uses demonstrates your ability to successfully manage your credit.
Credit Score Help
FICO scores were developed by Fair Isaac & Co. in the 1960s and have become the most widely used credit scoring measure. In fact, 90 percent of the top lenders use the scores in determining creditworthiness. FICO scores can range from 300 to 850. A FICO score range between 720 and 850 is generally considered “excellent,” with good, fair and poor credit ratings going down from there.
Regardless of the scoring parameter used, it’s important to note that all of the factors going into your credit score are as clear cut as the five listed above. Even those with higher scores need credit score help sometimes. While you may already understand the significance of these basic components, there are a number of additional factors that can affect your credit report, and ultimately your credit score. Whether your score is where you want it to be, or you’re looking to repair your credit score, it’s important to understand which factors might be impacting your credit report and overall scores, and which do not.
Here are some lesser-known factors that can impact your credit, both positively and negatively:
Social security numbers – In a perfect world, the social security number that’s issued to you at birth is the one you’ll keep for life. If you are the unfortunate victim of identity theft, however, you may need to be issued a new number. If you are issued a new social security number, it’s important to understand how it will affect your credit score and your ability to borrow. Essentially starting over means an unestablished credit history. Not all of the negatives associated with the past number are automatically erased either, however, which can make a new social security number one of the more challenging scenarios when it comes to credit and credit repair.
New credit reporting standards – The three credit bureaus launched the National Consumer Assistance Plan in March 2015 to make consumers’ credit reports more accurate and to make it easier for them to correct errors on their reports. As part of this initiative, the bureaus changed the way they collect and report civil judgments and tax lien information in July 2017. These changes affect what appears on your credit reports, potentially giving your score a boost.
Evictions – If you rent your home it’s important to understand how an eviction can affect your credit. Evictions can be the result of several factors and, depending on how the issue is resolved, it may not necessarily end up on your credit report. The fact that you received a an eviction notice doesn’t mean it will end up on your credit report. Provided you heed the notice, or pay any deficiency or fine that caused the eviction, you can avoid court and a judgment potentially ending up on your report.
Medical bills – If you’ve dealt with any medical issues and been faced with numerous medical bills, you know how quickly they can mount. Unfortunately, if left unsettled, medical bills can drag your credit score down. In fact, medical bills account for 42 percent of the collection accounts on Americans’ credit reports. The kicker is that once they’ve been charged off to a collection agency, it can be increasingly difficult to erase them from your credit report, even after they’ve been paid.
Behaviors That Impact Your Credit Score
There are many behaviors and decisions that can either positively or negatively impact your credit as well — from your diligence in monitoring your credit accounts, to the methods you use to pay your bills on those accounts.
Monitoring your credit report regularly is one of the most important behaviors impacting your credit score. Research suggests that 80 percent of credit reports contain errors, which, once identified, can be successfully removed. The more frequently you check your credit report, the more likely you will be to identify an error.
If you are attempting to clean up your credit, it’s crucial to keep tabs on your report to make sure things are being reported correctly, and there are no duplicate or erroneous accounts bringing down your score. Working with a reputable credit repair services company is the best way to get faster and more effective action disputing and removing negative items from your credit.
Paying your bills on time is the most important behavior that will drastically affect your credit score. The negative impact of a late or missed payment grows in proportion to the size of the debt and how late it is paid. Establishing some “best practices” in managing your bills can help. By paying your bills on the same date each month, and setting up automatic bill payments on accounts, you can avoid overlooking or missing a payment. Consistent, timely payments will greatly benefit your score.
Thinking back to credit utilization as one of the five factors that comprise your credit score, it’s crucial that you never max out a credit card. Of course, emergencies and situations sometimes occur that require us to use more of our credit than usual. If this happens to you, it is imperative to pay down the balances on your credit cards as soon as possible to get them back to that under-30-percent ratio.
Opening and Closing Accounts
Closing credit accounts is often viewed as a positive by consumers, but doing this can actually have a negative impact on your credit score. When an account is closed, all of the good credit history that may have been established along with it is lost, therefore dragging your score down.
Opening a new account, on the other hand, can benefit your score. You should not open several new accounts at once, however. New accounts are a good way to establish credit, but opening too many in a short period of time can be an indication that you are in need of credit, and you may consequently be viewed as a higher credit risk.
How Do I Fix My Credit?
If you’ve fallen short on some of these behaviors and your credit score has slipped as a result, then you’ve probably begun considering options to begin to fix your credit score. There is a lot of mixed information out there when it comes to credit repair and the best ways to approach it. Complicating matters is the fact that many consumers automatically reject the notion of working with a specialist for fear that credit repair is a scam.
Credit repair has gotten a bad rap in recent years, thanks to disreputable individuals and organizations. Many consumers fear that companies might use their lack of credit repair knowledge against them to scam them out of money with promises of an overnight credit fix. While scammers exist in every industry, it’s important to understand that legitimate, quality credit repair ultimately comes down to the firm you choose to partner with.
Taking a legal approach to credit repair is one of the most effective methods to help you successfully repair your credit score and maintain a good credit score in the future. Working with legal experts is the best way to ensure that the information contained within your credit report is fair and accurate. When you opt to fix credit legally, you will get faster action and better overall results.
Benefits of a Relationship with the Credit Bureaus
When it comes to choosing a credit repair partner, you can also benefit greatly by choosing a firm that has relationships with all three of the credit bureaus. Credit bureaus are private companies that collect information about consumers from banks, creditors, and legal records in order to create a consumer credit report for use by lenders and other financial institutions.
Today, there are three primary credit bureaus: Equifax, Experian, and TransUnion. These bureaus collect information about the approximately 2 million adults who use credit in the United States. The process for doing so, however, is not a perfect one. Factors including human error, identity theft, or the rigid nature of the credit reporting system, often results in the bureaus storing and reporting information that is inaccurate, misleading, or biased.
Much like credit repair, the three credit bureaus often get a bad rap. Consumers think these organizations are out to get them, or that they’re unapproachable when it comes to a credit dispute and removing negative items on a credit report. In reality, the credit bureaus want to provide information that is fair, accurate and complete.
Working with a legal credit repair expert that has direct relationships with these bureaus is the best way to ensure this happens.
If you are seeking credit repair assistance, Lexington Law can help. With our stable of legal experts, we can help you get the quick action you need when it comes to removing unfair and inaccurate items from your credit report. Lexington Law also has established direct relationships with each of the three credit bureaus and understands how to get results during credit bureau disputes and resolution.
When you partner with Lexington Law, you will see how our process for credit repair sets us apart from other credit repair agencies. We will evaluate your specific case and work with you on a tailored plan to quickly and effectively repair your credit and restore your credit score to good standing. Contact us today.