What impacts your credit?
These common issues can make – or break – your credit score. Learn what goes into that magic number and how to keep it strong.
Your credit score says a lot about you. Simply by viewing your score, lenders can determine your financial stability and fiscal responsibility, both of which could impact their decision to offer you anything from a credit card to a home loan. And, if you're a good candidate for a loan, you'll be less tempted to dip into your retirement savings for cash.* Make sure you're a safer bet for lenders by understanding your credit score and learning how to help boost it.
Know what goes into the score.
- Payment history. Always pay your bills on time. Your payment history accounts for 35 percent of your credit score, according to FICO, so a pattern of late payments will significantly impact your score. And don't forget about payments you aren't directly responsible for: Late payments on loans for which you've cosigned also can lower your score.
- Amount owed. To maintain a solid credit score, use only a small percent of your total available credit, and pay your balance in full each month. A responsible debt-to-credit ratio – the amount of money you owe vs. how much credit you have – shows lenders you're a good financial risk. Carrying large balances or taking months to completely pay off what you owe can nick your score.
- Creditor inquiries. Each time you apply for a loan or sign up for a new card, the lender or creditor checks your credit report, which causes your score to take a small hit. And while FICO notes that applying for new credit accounts for just 10 percent of your score, multiple applications – and the resultant credit checks – can become a big deal. The good news? When you request your report, your score remains unaffected.
- Credit history. Simply having an established credit history can increase your score – especially if your history is a long and stable one.
- Closed accounts. Think twice before shutting down older accounts. While you might feel better about closing open lines of credit, you could erase years of responsible borrowing and spending from your record. This shortens your credit history, which could lower your credit score.
- Credit diversity. Demonstrating that you can handle a variety of credit lines – such as a credit card, store card and a car loan – tells lenders you are fiscally responsible and strengthens your score. Conversely, consolidating your debt onto one card could increase your debt-to-credit ratio and limit your credit diversity, potentially lowering your credit score.
Managing your credit score means managing your spending. Find out where your money is going with this spending calculator.
Check your credit report every year and at least six months before making a major purchase with borrowed money. Doing so will allow you to spot and fix errors that could work against your score.