What Lowers Your Credit Score?
When a creditor looks at your credit report there are certain factors that will influence their decision about extending credit to you.
Payment History: Do you pay your bills on time? One late payment in two years is not going to make a huge difference but a pattern of late payments will negatively affect your credit rating. Payments that are consistently 30 days overdue will lower your credit score more than any other factor.
Credit Applications: Your credit report will show who else has requested to view your report. If you have applied for credit too many times, the multiple inquiries can lower your score. Keep credit card applications to a minimum, apply only for those accounts you really want and be careful about how many accounts you have open. It is better to have long-standing accounts that are paid on time than to have multiple accounts with shorter histories.
Balances: On average, it is best to never utilize more than 30% of your available credit. Having “maxed-out” accounts will negatively affect your score.
You may be surprised to learn that income is not a major factor in determining your credit score. If you have a large income but a history of late payments, your score will be lower than if you had a moderate income and a consistent payment history.
The three national credit reporting agencies use a formula known as FICO, named for Fair Isaac Corp., to calculate your credit score. The lowest score is 300, the highest 850. A score of 720 or higher will get you the best rates. A low score can mean higher interest rates or denial of credit.
A credit report records all of your credit activities such as loans, mortgages, and credit card accounts. It keeps track of your balances and payment history. This information is gathered by a Credit Reporting Agency (CRA) and can be requested by prospective creditors when you apply for credit. Be aware that prospective employers and landlords may also request credit information.