credit cards

Factors that can affect your credit score

What factors decide your credit score?

Having a high credit score can save you serious money. Your score affects everything from your ability to get credit to the amount of interest you pay and how much you are charged in fees. Your credit report contains a lot of information, and it all works to decide if you have a high or low score. Surprisingly, though, 65 percent of your FICO score consists of just two major pieces of information.

At 35 percent, your payment history makes up the largest portion of your credit score. This category takes into account how often you made payments -- or missed payments -- on things such as your car loan, mortgage or credit cards. Your history can be negatively influenced if you have declared bankruptcy within the past 10 years or if you have had delinquent accounts. Even missing one payment on one credit card can lower your credit score significantly.

Keep within limits

Right behind your history of payments, at 30 percent, is the amount of debt you carry. Lenders like to see that you don't use all of the credit available to you. The lower your debt-to-credit-limit ratio on revolving accounts, or utilization, is, the better. FICO recently suggested keeping balances below 10 percent of your total credit limits if you are trying to improve your score.  

Other factors that impact your credit score include the frequency with which you acquire new credit and the length of your credit history. But it's important to note that your income has no effect on your score at all. As long as you maintain a low debt-to-credit-limit ratio and make timely payments on any outstanding debts, even a modest income earner can build a high credit score.

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