If you're wondering how your credit score is calculated, the good news is that there are several factors you can control. First, your credit history is an important factor. The older your accounts are, the more likely lenders are to trust that you'll be able to pay them off on time. A longer repayment term can increase your score.
Payment history
One of the most important factors in determining your credit score is your payment history. Failure to make a payment on time can cause a big dip in your credit score. In addition, late payments can remain on credit reports for seven years. It is essential to make timely payments, even if you are only a few day late.
Age of accounts
Credit scoring models evaluate the average age in your credit accounts. These information are used to determine your overall credit score. However, different age-related factors may affect your score depending upon the scoring model you use.
Credit limit for age
Your credit score can be affected by the average age of your accounts. Creditors appreciate proof that your accounts are active for a while. The more mature your accounts, the better chance they have been responsibly used. Older accounts tend to have a lower average age, which can impact your credit score.
Payments made on time
Payments made on time are a very important part of your credit score. They are reported monthly to the three largest consumer credit bureaus. Late payments can cause credit scores to drop by up to 180 points. So it is critical that you pay your debts on time.
Recent loan activity
Recent loan activity is one of the key elements of your credit score. An excessive number of inquiries and accounts can harm your score. There are ways to fix it. First, you need to go through your credit report and make any necessary adjustments. You might open a new card, or get a small personal loan if your credit report isn't in order. Also, ensure that you pay your bills on time. You will see an improvement in your score if you have a consistent practice of paying on time and with responsibility.
Soft inquiries
Soft inquiries have a number of ways to affect your credit score. Soft inquiries are performed when you apply for new credit cards. If you apply for homeowners or auto insurance, an insurance company will also conduct a soft inquiry. Although these inquiries won't be visible to anyone, they will be on your report.