What Factors Influence Your Credit Score?
Are you working to improve your credit score? If you are, it can be helpful to know exactly which factors go into your score’s calculation, as a good to excellent credit score can significantly impact your purchasing ability. Your score affects everything from whether you can get approved for a mortgage, if you get approved for your next apartment and what kind of interest rates you qualify for.
Having a thorough understanding of what factors affect your credit score becomes critical if you want to buy your next car. Credit scores get calculated using various financial metrics, with the following factors playing a significant role in your FICO credit score calculation.
Payment History
The first thing any auto lender wants to know when you request credit is how often you pay your bills on time. Your credit heavily weighs how often you pay your credit card bills on time, even if it’s only the minimum payment. Generally speaking, you’ll have a higher credit score if you make at least the minimum payment on time every month.
However, if you regularly miss your credit card payments, you might need to search for a bad credit car loan in Philadelphia, PA, if you need to borrow money to buy a vehicle. Your payment history accounts for about 35% of your FICO score, making it the most critical factor in determining your score.
Credit Usage
How often do you rely on your credit cards to pay your bills every month? If you do, you’ll have a lower credit score. Your credit utilization ratio plays another vital role in determining what your credit score looks like. Generally speaking, keeping your credit usage on the lower end showcases your ability to be responsible with your credit.
Borrowers who use large percentages of their credit each month present a higher risk to credit card companies because they assume that you don’t have enough money in savings to cover an emergency. Your credit usage accounts for about 30% of your FICO credit score calculation.
You can help realign your credit usage by setting up various balance alerts and scheduling more frequent payments throughout the month to keep that balance low.
Length of Credit History
Auto lenders love to see that you have an established track record of maintaining good credit practices. Having lines of credit going back years to your oldest account helps establish a baseline for credit score and shows how you’ve been responsible with your credit over time.
The length of your credit history typically accounts for about 15% of your total score calculation. The longer you have a credit account actively open, the less risk you present to lenders. Even if you aren’t using them, leaving credit card accounts open will naturally increase your score over time.
Quality of Your Credit Mix
There is more than one way to build a credit score.Having a healthy mix of different credit accounts — think previous car loans, mortgages, and credit cards — help inform the credit bureaus that you have experience making timely payments on various types of credit. With so many different types of loans that require your timely payments, they all factor into the strength of your credit score.
How Often You Apply for a New Line of Credit
Hard inquiries on your credit cause a dip in your credit score. The more often you open a new line of credit, the more points get taken off your score. While each might only be a few points here and there, opening enough credit lines in a short period of time can have a significant effect on your score.
Sometimes, you can’t wait months or even years for your credit score to increase before purchasing the car you need. If you’re still building your credit, consider applying for an auto loan in Bucks County, PA, from PA Auto Credit. We make it easy for more Philadelphians to get approved for the loan they need. Give our auto lenders a call today to learn more or get started! 1-800-736-4450