What Affects Your Credit ScoreOct 12nd, 2021
The Surgenor Auto Credit team works with a wide range of customers with a diverse pool of credit ratings. After seeing directly how your credit affects the cost of a car loan as well as your accessibility to one, we've decided to investigate some of the elements that can have a major influence on your credit score. If you're applying for a car loan, a mortgage, or just a credit card, your credit score can dictate how much you're qualified for—or if you've even eligible. Of course, we're all about coming up with innovative methods to get you behind the wheel of a new car at an affordable price. So, either keep reading to discover more about the elements that impact your credit score, or give us a call and contact us as soon as possible.
5 Factors that Impact Your Credit Score
These five criteria will have the biggest influence on your credit score, so keep them in mind whenever you apply for or use credit. As we go further down, we’ll examine them all in detail. These five factors are Payment History, Amount of Debt, Credit History, Types of Credit, Credit Inquiries.
Your payment history may be the most visible and crucial aspect in deciding your credit score—it accounts for roughly 35% of your score. This is why paying off any lines of credit in your name, whether it's a credit card bill, a school loan, a mortgage, or a vehicle loan, is critical. You face the danger of lowering your credit score monthly if you continuously miss a payment or for the entire amount owed. The occasionally missed fee will not immediately harm your credit score, but the more frequently it occurs (or if the payment goes into delinquent or collections), the larger the damage will end up being.
Amount of Debt
Your credit usage, or the debt load you carry, contributes to around 30% of your credit score. Debt isn't always a terrible thing; in fact, you should keep lines of credit available, but it's a tight balance to navigate. Although having a bunch of maxed-out credit cards does not necessarily doesn't weaken your creditworthiness, it will look worse than having numerous credit accounts that you regularly make payments to.
To figure out your credit usage ratio, multiply the amount of credit you have in your name by the amount of credit you've borrowed. For example, if you had two credit cards with $500 limits apiece and a $150 debt on each, you'd have a $300 balance on $1000 worth of credit. As a result, your credit usage rate would be 30%. Now, a credit usage rate lower than 30% will help your credit score (the lower the better), but a rate of more than 30% will have the reverse effect—the higher the rate, the more unfavorable the impact will be.
Your credit score is influenced by 15% by your credit history, also known as credit age. The length of time you've had open credit accounts determines this. So, if at all feasible, you should avoid canceling credit accounts, as they will only be on your credit record for seven to 10 years. So, even if you've finished paying off that Visa, leave it open to show potential creditors that you've appropriately handled credit for a long time. Creditors will calculate the average age of any credit line if you have several lines of credit by combining the ages of each account and dividing by the total number of accounts. If it appears that this system favors the elderly, keep in mind that the longer you have accessible credit, the longer you've been paying interest on it—and the greater probability you have to make a mistake and not pay on time.
Types of Credit
You can have two different forms of credit, both of which account for 10% of your credit score. There's revolving credit, a line of credit that reopens instantly when it's paid off. Examples include credit cards, personal lines of credit, and home equity lines of credit. There’s also installment credit, which is a cash payment that you pay off over time at a fixed interest rate. These include auto financing, student loans, and mortgages. It's all a balancing act, as it is with anything credit-related. Having two forms of credit open, be it a credit card and a mortgage or any other combination, will enhance your credit score. Managing your accounts appropriately, irrespective of the credit types you possess is essential to sustaining a high credit score.
The two distinct forms of credit inquiries also have a 10% influence on your credit score. A soft inquiry does not affect your credit score, but a hard inquiry does. A single hard inquiry, on the other hand, will have a minimal or insignificant influence, but if you go to many creditors and they all do a hard inquiry, it will raise concerns when trying to obtain a loan. Another factor to keep in mind is your credit history; being granted several loan applications will result in additional lines of credit, lowering your overall credit age.
While we can't modify your credit score in any capacity, the Surgenor Auto Credit staff will do everything possible to get you a loan at an interest rate you can handle and suits your budget. Please do not hesitate to contact us if you have any queries regarding your credit score or if you need guidance on how to increase it in the future!