Having a credit score between 650 and 800 opens the doors to many financial opportunities. It makes acquiring everything from a credit card to a house or apartment simpler and more affordable. Some might even argue that having a fair to excellent credit score is more valuable than having a lump sum of cash in the bank. That’s why many people work hard to establish and build their credit histories. Here’s an interesting read on the impact of a credit check on your credit score health.
Whether they open a new credit card, take out a loan, pay down debts, or turn to solutions like credit builder offers, consumers can achieve their credit score goals with time. However, where most consumers mess up is assuming that their scores are safe once they reach a certain point. The truth is, your credit score fluctuates regularly, and failure to monitor and keep up with proper money management practices can cause it to decline.Â
What Impacts Your Credit Score?Â
It may come as a surprise that your credit score doesn’t remain the same. Even if you’re a relatively financially responsible person, there are minor and major factors that can affect your rating. Below is a look at some of the factors that impact your score.
Payment History
One of the first things creditors, lenders, and other financial providers review to determine your eligibility and risk level for credit services is your payment history. Your payment history is a detailed financial record showing whether you pay your bills and whether you do it on time or are habitually late.Â
While it’s easy to assume this would only impact your credit if you’re 30 days or more behind on your bills, that’s not the case. If you pay your bill after the creditor reports to bureaus, it could cause a change in your score. For example, if your car loan is due on the 15th of every month and the lender reports on the 25th, paying on the 30th can impact your score.Â
Credit Utilization Rate
Another factor that contributes to your credit score is your credit utilization rate. It is the percentage of credit you have available compared to how much you owe. While the whole point of a credit card or loan is to use the money, owing too much can hurt your credit score.Â
Someone that maxes out their credit cards or has recently acquired a mortgage will have a high credit utilization rate, which would cause a drop in their score. However, don’t assume you’re safe. If you owe more than 30%, it can change your credit status. For instance, if you have a credit card with a $1,000 limit, spending more than $300 would cause a problem.Â
Account Inquiries
Did you know that your credit score can change if a creditor, lender, or service provider reviews your credit history? Account inquiries are common to determine an applicant’s eligibility and creditworthiness, but they come at a cost. Although it only takes away a few points, it can add up quickly.Â
Let’s say you’re trying to acquire a mortgage, and you put in an application with five different banks. That’s five inquiries on your credit profile. If each inquiry is ten points, you could lose 50 points on your score in a matter of days.Â
Account Length
Last but not least is the age of your credit accounts. The longer an account has been opened, the better it is for your credit score (assuming you’ve managed the account responsibly). It shows that you know how to manage your finances over a longer period of time. Unfortunately, most consumers are unaware of this factor. So, they pay off credit card balances and close the account. Consequently, their credit scores decline.Â
It would be nice if you could achieve an excellent credit score and never have to worry about it again, but that’s just not reality. As multiple factors impact your credit rating, seeing fluctuations is common. Now that you understand how credit scores work, you can make more informed decisions that help you establish, improve, and maintain better ratings.
