Military Members Should Know What Makes Up a Credit Score

Military members have a lot on their plates when they’re on active duty, and their families are likely in a similar position, but during this time and in the months following, it can be incredibly important to make sure credit is as healthy as possible.Â

One of the best ways to do so is to arm oneself with all the necessary knowledge about just what makes up a good credit score. As one might imagine, a credit score is determined using a very complex rating system made up of a wide variety of factors, all of which are related to the ways a borrower handled credit in the past. Having a complete understanding of exactly what goes into determining that information, therefore, will help arm consumers to better deal with their credit overall, which in turn will typically give them a better chance to improve their score.

The two biggest factors
Though there are five different factors that go into setting a borrower’s credit rating, it’s important to keep in mind that not all are created equal. In fact, there is actually a pretty sizable imbalance in which factors account for what portions of a rating.

The largest is also the simplest to understand: Payment history. In short, missing a single payment on any one account is seen as the biggest misstep a borrower can make in dealing with credit, so the less often a borrower does it over a period of several months, the better their credit score will be in general. Overall, this factor alone accounts for 35 percent of one’s score, and as such it should be protected as much as humanly possible. However, for those who have missed a payment in the past, it’s not the end of the world. By continuing to make all of your payments on time, and seeking the help of a credit repair law firm, may help to patch over the misstep and return this portion of a borrower’s score to its maximum value.

The other major portion of a credit rating, making up 30 percent, is the amount of credit one uses versus their total limits. This factor — known as “credit utilization ratio” — is essentially determined by examining how much a borrower owes versus how much they’re allowed to take on at any one time. In general, having more debt will be considered a negative, and borrowers who want to make sure this portion of their score is as high as it possibly can be should plan to only be using 30 percent of their total available limits at any one time. Those who are over that limit might want to plan to make larger payments for some time in an effort to get back to those lower, safer levels.

The other three
The remaining 35 percent of one’s score is comprised of three factors. One — length of credit history — makes up 15 percent by itself, while credit mix and number of recent inquiries account for 10 percent each.

These factors are fairly simple to understand, but can be harder or even impossible to influence in a short period of time. Credit mix essentially means the number of different account types a borrower has in their name. It shows lenders that they can be trusted to handle a wider variety of accounts. Different accounts can include credit cards, student loans, auto loans, mortgages, and so forth.

Credit history is something that cannot be changed for the better in a short time. It’s just the average amount of time a borrower has had all their accounts, and longer periods of time show lenders that the person can manage their accounts over years or even decades.

Finally, inquiries are simply requests for new lines of credit. To make sure this factor is maximized, one should try to apply for credit as little as possible in a period of a few months, and avoid repeated attempts to qualify for accounts for which they have been rejected.

What it all means
Maintaining healthy credit can be important for military members so that they can get a better handle on their finances when they get back to the civilian world. During a period of service, it might also be a good idea to put an active duty credit alert into place so that they can be aware of any attempts to establish new lines of credit in their name.

Military members should also order copies of their credit reports whenever possible. Doing so may help them identify any unfair markings on such a document, and if any are discovered, it can be wise to contact a credit repair law firm, which may be able to help remediate the issues.