The initial deposit for cable service, utilities, rent, and smartphones is determined by your credit score. Lenders frequently check your credit score when they change interest rates and credit limits. Your credit score is calculated based on three factors: your payment history, the total amount owed, and the length of your credit history.
Lenders view individuals with longer credit histories as less risky because they have more data to judge your payment history. If you have poor credit, then you might need to consider taking out a loan for bad credit.
Payment History Accounts for the Largest Portion of Your Credit Score
Your payment history is the single most important factor in calculating your credit score. In fact, it accounts for more than 35% of your total credit score. Your credit score reflects your overall financial health. Creditors and lenders are concerned with how well you paid your debts in the past, so they place a higher priority on this information than any other factor. If you’ve recently defaulted on a credit card or installment loan, you can expect a significant negative impact on your credit score.
Although your payment history accounts for the largest portion of your credit report, it’s not the only factor. There are other factors, such as your current balance, that determine your score. For example, the size of your credit card balances and the number of late payments are important factors. The longer your payment history has been on time, the higher your credit score will be. Similarly, if you’ve missed a payment in the past, it may not have had a significant impact on your score.
Length of Credit History Helps Lenders Assess Risk
Lenders assess a person’s credit risk by analyzing the length of his or her credit history. The longer a person’s credit history is, the better it is for lenders to gauge his or her ability to pay off existing debts. Likewise, the frequency of new credit applications also matters to lenders. The more credit a person opens, the more they may worry about that person’s ability to pay off that debt.
Lenders use the length of a person’s credit history to determine how much risk a person poses. A person with many open accounts has a longer credit history than one with only one account. However, the average age of a person’s open accounts also plays a role in determining how risky a person is. Fortunately, there are several ways to calculate the length of a person’s credit history.
VantageScore Is a Competing Model
Many financial institutions use one or the other model to determine credit worthiness. VantageScore, for example, is used by many credit card companies and auto lenders. Whichever credit scoring model is used, it will be based on similar factors. If you have sub-prime or near-prime credit, you may struggle to get approved for credit cards or loans. You may have a high score, but a low one will put you at risk of paying higher interest rates or being denied altogether. If you fall into either category, take the time to improve your VantageScore.
While the new version of VantageScore uses machine learning techniques to determine creditworthiness, this does not guarantee a higher score. This is not the first new model to hit the market, but it could have an immediate impact on your score for some people. However, it won’t change the primary underlying factors. This is why many financial institutions prefer the VantageScore 3.0 model.
Your Age Affects Your Credit Score
You may be wondering if your age affects your credit score. The fact is that your age does affect your score in several ways. If you are a recent college graduate, your score will likely be higher than someone half your age. However, you can improve your score by reducing the number of negative accounts on your report. As you grow older, your credit mix will be more balanced. If you have a lot of revolving debt, you will need to pay it off slowly to improve your score.
Your credit score will rise in the mid to late 30s. By the time you reach your 40s, you’ll have accumulated many more credit accounts and will have a more diverse credit history. This will also be reflected in your credit report. You may have added additional loans, mortgages, and car financing. The older you are, the more credit-related boxes you will have on your report. This will be beneficial to lenders.
