We know how important the credit score is. It dictates the chances of our loans. It is also, where lenders would base the amount to lend us as well as the term of payment suitable for us. This is because through the credit scores, the lender can measure the risk they will take in lending us a certain amount. Knowing that the credit score is important is not enough. We have to know the factors that influence it. Identifying these factors will help us learn how to improve our scores.
The scores are identified by the different credit bureaus in the country. Today, there are three trusted bureaus in the nation. These bureaus compute the score using the different information submitted by the creditors. Any changes in the information submitted affects the scores since it is all part of the formula of how the credit scores are computed.
Since there are several factors affecting the computation, it is best that you know them. This way, you will know what to do to improve your credits score. Here are some of the said factors:
1. The payment history is among the most essential factors considered in identifying the credit score. This is because creditors would want to check if you are current with your payments or will they have difficulty collecting from you. If you always pay your dues on time, your score will be higher. However, if it is otherwise, then, you will most likely have a lower score. Keep in mind that missed payments and unpaid payments are included. It will be checked when you missed your payment, how often you missed it and the amount involved.
2. Your liabilities will be included as well. Lenders want to know how much you owe other lenders. Even if you are current with all your payment, this will still be included in measuring your ability to pay the additional debt. If you want to have better score, settle some of your obligations first.
3. The period of having credit will also be considered. As mentioned earlier, essential information has to be gathered in order to establish the credit score. If you only had credit for a short time, then the information will not be enough. The score is higher if you have had credits longer.
4. Lenders would also want to check your stability. If you are stable, the risk of lending you money is lower. This can be monitored by checking the organization you work for. The length of your service will be verified and the status of the company will be checked. They will also consider your residence. For them, you are stable if you have stayed in that address for three years or more.
5. The type of credit you have will also affect your score. There are two types of credit. That is the revolving and the installment. Car loans and mortgage are examples of installment credits while credit cards are example of revolving credits. A combination of both types will have higher score because both are difficult to acquire.
In order to improve your credit scores, you should know the factors that affect them.