Your credit score ranges from 300-850 on the FICO scale created by the Fair Isaac Corporation. Since a higher credit score generally means you can get lower interest rates on loans, it is in your best interest to do things that help your score and avoid those things that hurt it. Late payments, a high amount of credit, a short credit history, a bad credit mix, and excessive credit inquiries all conspire to lower your score.
Bad Payment History
According to the FICO model, your payment history is the single most important component of your credit history, contributing 35 percent of your overall score. Every time you make a late payment, you damage your score. If you have a public record in your credit history, such as a judgment, wage garnishment or bankruptcy, your score will drop dramatically. According to Experian, the single worst thing you can do to your credit score is to file bankruptcy, followed closely by having accounts in collection. As with all negative credit items, the more time that passes since a negative item, the less your score is impacted.
Too Much Debt
Taking on an excessive amount of debt is the next most damaging thing you can do to your credit score. In addition to the gross amount of debt you have, your credit utilization also falls into this category. Credit utilization is the percentage of available credit that you use, with a higher percentage causing more damage to your score. Overall, the amount you owe on your accounts contributes 30 percent of your FICO score.
Short Credit History
The longer you have had credit, the better. Every time you open a new credit account it shortens the average life of your credit, so consistently opening new accounts can prove damaging to your score. While not as significant as your payment history and the amount of debt you owe, the length of your credit history contributes 15 percent of your credit score.
New Credit Inquiries
Consistently applying for new credit signals to lenders that you may be overextended and unable to pay off your existing debt. Credit inquiries stay on your credit history for two years, although they only factor into your FICO score for 12 months. The more recent your credit requests, the more damage they cause to your score. The amount of credit inquiries you have contributes 10 percent to your credit score.
Bad Credit Mix
The final 10 percent of your credit score consists of your credit mix. Ideal credit histories show a blend of various types of accounts. If you have only one type of debt, such as revolving credit card debt, this hurts your score. In addition to credit cards, an ideal credit mix will show everything from a home mortgage to a car loan to retail store charge accounts.
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