5 factors that impacts your credit score!

5 Factors that impacts your credit score!

If you are planning to apply for a mortgage to purchase your dream home, here are 5 factors  that impacts your credit score that you should know – 

This will help you to build a good credit score, and quality for the maximum amount of loan you can get! 

1. Payment History 

Of the many things we need to keep up in our every day lives, paying bills on time should really take one of the highest priorities in our to-do list. 

Yes, you may have heard this from someone else before – but what you may not know, is that payment history takes up to 35% of your credit score factors, which is the highest of all 5 ! 

Once late payment is logged in your credit history, it lowers your score and could take years to get it removed – so it really is worth it to put a good energy to get those bills paid on time!  

2. Credit Utilization rate 

Credit utilization rate is how much you owe divided by your credit limit – and the lower it is, the better it is.  (For example, if you owe $2500 on a $5000 credit limit, your utilization rate is 50%.)

It is best to keep your debt to less than or around 30% of your credit limit to demonstrate a good credit utilization rate. 

The key is being consistent on your payment, and not making substantial payment twice a year to bring up your payment up to date, because it counts! 

This takes about 30% of your credit score rating. 

3. Length of credit history 

The longer your account has been open and active, the better it is.

Commonly, around 7 years is deemed as reasonable history. 

Also, closing accounts or credit cards could hurt your credit, so it is best to keep them open if you can. Closed accounts usually stays in your credit records for about 10 years until removed. 

This takes about 15% of your credit score rating. 

4. Number of recent inquiries to your credit scores 

Avoid having credit unions to access and pull your credit scores too often – keep it as minimal as possible.  Credit unions will access your credit score when you apply for new loan applications, or make large purchases, etc. It will temporarily bring down your credit points. 

This takes about 10% of your credit score rating. 

5. Types of credit 

A good mix of different credit types can also help to improve your credit score. 

For example, a mix of what’s called revolving credit (which typically is credit cards, where you can borrow the money freely but has a cap), and installment credit (loans such as car loans, mortgage, student loans, etc.) is the most common types of credits. 

This also takes about 10% of your credit score rating. 

Remember, what the banks/lenders are looking for, is to evaluate whether if you are a trustful, responsible person who is able to repay the loan on time, without the risk of defaulting during the life of loan. 

Every activity on our account counts, so let’s start building a good credit today! 

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