Credit scores are numerical representations used by lenders to evaluate an individual’s creditworthiness and determine the risk of lending them money or extending credit. Various factors contribute to the calculation of credit scores and understanding these factors can help individuals manage and enhance their creditworthiness. While there may be slight variations in different credit scoring models, the following common factors typically impact scores for credit repair:
1. Payment History (35%): This refers to your track record of making payments on your credit accounts, such as credit cards, mortgages and loans. Timely payments have a positive influence on your score, while late payments, defaults, bankruptcies and other negative occurrences can significantly lower it.
2. Credit Utilization (30%): This represents the proportion between your current balances on credit cards and your available credit limits. Lower utilization ratios are generally viewed more favorably by creditors and can have a positive effect on your credit score.
3. Length of Credit History (15%): The age of your credit accounts plays a role in determining your credit score. Generally speaking, a longer history is seen as more favorable since it provides a more extensive record for assessing an individual’s trustworthiness.
4. Types of Credit in Use (10%): Lenders prefer to see a variety of credit types in use, such as credit cards, installment loans and mortgages. Having a diverse credit profile is generally seen as a positive aspect.
5. New Credit (10%): Opening multiple new credit accounts within a short period might be considered risky, especially if you have limited credit history. Each time you apply for new credit, it can temporarily lower your credit score by a small amount.
6. Public Records and Collections: Bankruptcies, liens, judgments and accounts in collections can significantly harm your credit score.
7. Recent Inquiries: Whenever you apply for credit, it gets recorded on your report as a hard inquiry. While one inquiry has only a minor impact on your score, multiple inquiries within a short timeframe may indicate financial strain.
8. Credit Mix: A mix of different types of credits like credit cards, installment loans and mortgages can have a positive influence on your overall credit score.
It’s important to keep in mind that various credit scoring models may slightly prioritize these factors differently. Moreover, credit scores are not fixed and are subject to change depending on your financial actions. It is advisable to regularly keep an eye on your credit report and make prudent financial choices in order to uphold and enhance your score for credit repair in the long run.