There’s a lot to know about your credit score. Understanding how your behavior impacts this important number is essential to maintaining a healthy credit file, and knowing how your credit score affects your financial life can help you make the right credit decisions for you.
Here are nine important facts you should know about your credit score.
1. Your credit score affects how much you pay to borrow money.
Your credit score is one of the main factors lenders use to determine whether to extend you credit. From a new credit card to a mortgage or auto loan, your credit score can mean the difference between an expensive loan and an affordable one.
2. Your credit score is impacted by your credit behavior.
Credit reporting agencies (CRAs) and other agencies, such as FICO, calculate your credit score based on your credit history and credit behavior. The information on your credit report comes from lenders that have extended you credit in the past. Credit grantors such as credit card companies, banks, credit unions, retailers, and auto and mortgage lenders report the information about your credit activity to the CRAs.
3. Your payment history is generally weighted most heavily when calculating your credit score.
Because your payment history is the largest factor impacting your credit score, it’s important to pay your bills on time. If you are getting behind, create a budget and a payment calendar. If you are paying down several debts at once, remember to make at least the minimum payments on all your loans. Late payments are one reason your credit score could drop.
Read more: Five Reasons Your Credit Score Could Drop
4. The amount you charge on your credit cards is factored into your credit score.
Your debt-to-credit ratio, or the amount you owe in relation to the amount of credit available to you, is another important factor used to calculate your credit score. A high debt-to-credit ratio could impact your credit score because it indicates to lenders that you rely heavily on your credit accounts, even if you pay them in a timely manner.
Read more: Five Tips for Maintaining an Optimal Debt-to-Credit Ratio
5. Your credit score can be impacted by new credit accounts.
Opening multiple credit accounts within a short timeframe can impact your credit score. The length of your credit history is factored into your credit score, and opening a new account shortens your average account age. A higher average account age shows lenders that you have a longer credit history and may be more capable of handling credit.
6. Your credit history remains on your credit report for years.
Information about your credit habits will remain on your credit report for an extended period of time. Certain positive information, such as a mortgage that is paid-as-agreed, will remain on your report for up to 10 years. Other information, such as a late payment that is 30 days past due, may remain on your report for up to seven years.
Read more: How Long Does Information Stay on My Credit Report?
7. Good habits can help you build your credit history.
Make sure you pay your bills on time and handle your debt responsibly. If you do not qualify for a traditional line of credit due to a lower credit score, consider using a secured card or a retail store card. These cards are generally easier to get and may help you practice good credit behavior.
Read more: Can I Get a Credit Card with a Low Credit Score?
8. Having different kinds of accounts on your credit report may help you build credit.
Your credit score will reflect whether you have a history of handling diverse kinds of credit successfully. Approximately 15 percent of your credit score is based on the types of credit you use, such as department store charge cards, student or auto loans, and mortgages.
Read more: Ten Things That Can Affect Your Credit Score
9. Requesting your own credit report won’t harm your credit score.
Monitoring your credit report and credit score will help you see how your credit behavior impacts your credit worthiness, so it can be helpful to review it regularly. Know that a request for your own credit results in a soft inquiry on your credit report. Soft inquiries are only visible to you and do not impact your credit score. Consumers are entitled to one free credit report every year from each of the three CRAs through AnnualCreditReport.com.
Read more: Five Credit Habits to Avoid
Understanding your credit file is a big step toward managing your finances responsibly. While this list doesn’t cover everything you need to know about your credit file and your credit score, it’s a good place to start. You may want to regularly review your credit report and credit score (which you usually need to order separately) so you can keep track of how your credit behavior looks to lenders.
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.