Credit Issues: What You Need to Know

What raises my credit score?

Both negative and positive factors influence your credit score. The most important factors that raise your score are listed below, in order of importance. Remember that these factors vary in how strongly they impact your credit score. For example, if you have a very high credit score, the negative factors in your analysis are likely to have a small impact. The same is true for positive factors if you have a very low credit score. Payment History : You have never missed a payment, and no negative public records are listed on your credit report. This will improve your credit score. Missing payments is a negative factor. Some cases are worse than others. For example, if you have not missed any payments recently, lenders may think you are (or have become) responsible and do not (or will no longer) miss payments. Also, missing payments on only a few accounts is not as harmful as missing payments on most or all of your accounts, because lenders realize that many people miss a payment (or pay late) once in a while. Also, missing a single payment is not as harmful as missing several consecutive payments because many lenders consider missing 3 or more consecutive payments as an indication that you may never repay them. Finally, it is not as harmful to miss payments on accounts with low balances as it is on accounts with high balances because lenders stand to lose less money on low balances if they remain unpaid. Credit Usage : On average, you currently maintain a low balance on each of your open credit card accounts. This makes your score higher too. High balances are a negative factor (except for some types of installment loans such as mortgages and auto loans), because lenders worry that you are living beyond your means and may not be able to repay them. This is particularly true with credit card debts. Lenders do evaluate how much you owe (your debt) in relation to how much you earn (your income). However, changes in your employment and income, or certain life events (such as divorce or illness), may cause difficulty for you to pay your monthly bills. Meanwhile, low balances are a positive factor because lenders do not stand to lose too much if you become unable to repay them. However, never using your credit cards may be considered a negative factor. First, it does not provide lenders with information about how you typically use credit and repay your debts. Second, it also means that you have a lot of available credit, which you may decide to use if you experience financial trouble. Credit Applications : You did not apply for credit in the past 6 months. This makes your score higher as well. When you apply for any type of credit (such as a mortgage, auto loan, credit card, department store card, etc.), your credit history is checked by the lender considering your application, and it is noted on your report as an "inquiry." Although inquiries are a natural result of applying for credit, lenders dislike seeing many within a short period of time. This is because it is hard for them to determine whether you are applying with different lenders in a search for the best offer or if you are desperately trying to obtain credit because of financial trouble. Remember, making many applications in a short period of time could hurt your credit score. Therefore, try to limit your comparison to a small number of lenders when "shopping" for the best offer.