5 Factors that Make Mr. Fantastic’s Credit Score Fabulous
We all want a great credit score. A good credit score can open a number of doors. Mr. Fantastic, genius that he is, knows that a good credit score is about more than just getting approved for a loan, and getting good interest rates on those loans. Having a good credit score can also help you in a number of other ways:
- Better car insurance rates
- Lower security deposit with some rentals
- Approval for TV and cell phone service
Additionally, your credit report might be used by potential employers as part of the screening process. While employers aren’t supposed to check your credit, score, they can look at your credit report (with your permission).
Because he’s a super-genius, Mr. Fantastic doubtless has a great credit score. But you don’t need to have the ability to change your shape or an advanced knowledge of physics to have a fantastic credit score. Just pay attention to the following 5 factors:
1. Payment History
According to FICO, the company that basically invented credit scoring, the most important factor that determines your credit score is whether or not you make your payments on time. Your payment history is basically affected by two types of payments:
- Payments you make regularly: Creditors report, regularly, when you make payments. So, as you make your credit card and other loan payments on time, that positive action is reported. Not all payments you make, such as payments to utility companies, are reported regularly. As a result, not all of your positive payment behaviors make it to your credit report in order to be included on your credit score.
- Payments you miss: Your credit score is negatively impacted when you pay late, or when you miss a payment. Obviously, your late and missed payments on loans will be recorded and taken into account with your credit score. However, it is important to realize that, even though your utility company or landlord may not report on-time payments to the credit bureaus each month, they can report missed payments. So, missing your payments can mean a lower credit score — even if it isn’t missed on a loan.
In order to maintain a good credit score, you need to make all of your payments on time — and in full. Always pay at least the minimum required in order to keep a respectable credit score. Your payment history accounts for 35% of your credit score.
2. Credit Utilization
Your FICO score is also influenced by how much debt you have. You will find that 30% of your score resides in how much outstanding debt you have. The amount you have on your credit cards is a big part of your credit score. If you carry a balance that is a large portion of your credit limit, your credit score will be lower. The more debt you have, the lower your credit score is likely to be. You can improve your credit situation by paying down your debt. Many recommend that your credit card balances amount to no more than 25% to 30% of your available limits.
3. Length of Credit History
15% of your credit score depends on your credit history. The length of your credit history includes how long you have used credit in general (when you got your first loan, or how long your oldest credit card has been open), as well as the average “age” of your credit accounts. To figure the average age, the length of time you have had your accounts is added up and then divided by your total accounts. So, if you have a lot of newer credit accounts, the average age will be lower — and your credit score will be, too.
The longer your credit history, the higher your credit score is likely to be. You should strive to keep longer accounts open. Many people like to keep their first credit card active, even though it doesn’t have rewards, just to increase the average age of their credit accounts.
4. New Credit Accounts/Credit Inquiries
When you look at your own credit, or when someone looks at your credit for marketing purposes, it is known as a “soft” credit inquiry. This type of inquiry won’t affect your credit score. However, if you are applying for new credit, the story changes. When you apply for a new credit account, the inquiry is “hard” and appears on your report. It will impact your credit score, and could even drop your score enough to make a difference — especially if you are on a borderline. If you apply for a lot of new credit in a very short period of time, it could also reduce your credit score. Be aware, though, that if you are rate shopping for car loans or mortgage loans, your multiple inquiries are usually treated as one inquiry, as long as they are made over the course of a couple of weeks. This factor accounts for 10% of your credit score.
5. Types of Credit Accounts
The final 10% of your credit score is influenced by the types of accounts you have. One of the considerations is whether or not you have a mix of revolving accounts and installment accounts. Another consideration is whether you have more desirable debt, such as a mortgage, or if you have been using payday loans, which are considered less desirable. Pay attention to the different types of loans you have, and put together a mix of various types of loans so that you show you can handle different situations.