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The 5 Factors That Decide Your Credit Score

Your credit score is a deciding factor used by lenders to determine your eligibility for loans.

Scores can range from 200 to 800 with 620 and above considered desirable for obtaining a mortgage.

The following 5 factors are the main determinants of your score:

1. Your Payment History. Paying bills on time and in full is very important. Late payments count against your score depending upon the amount of time left overdue. Filing for bankruptcy and liens on property will also negatively impact your score.

2. Your Debt. Owing large amounts of money on several accounts will indicate to lenders that you have overextended your financial capability. However, it's a positive thing if your balances are in good proportion to your total credit limits.

3. The Length Of Your Credit History. In general, the longer you have accounts opened, the better. On average, consumer's oldest obligations have been open for 14 years showing their ability to manage credit over long periods of time. Lenders will look at your payment history for consistency so they further they can go back, the better.

4. How Much New Credit You Have. New debt, either payment installments or credit cards are considered more risky by lenders, even if they are paid promptly. Lenders are more interested in your consistency over time than in the short run. They also consider taking on new debt a financial risk when also attempting to take on more loans.

5. The Types Of Credit Used.  In general, it is better to have diverse credit history meaning not all debt is tied to credit cards or to a mortgage. In other words, it's better to have your debt spread around than tied up in one chunk.

To find out how to improve your credit score, see: Settling the Score.

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