What Impacts Credit Score

Many different variables have an impact on your credit score. The big factors include payment history, how long the account has been open, balance to limit ration and credit inquiries. All of these have a large impact on your credit score with the most important being payment history. One 30 day late payment can have a negative impact on your credit score and drop your credit score as much as 100 points.

Keep in mind, the balances of your credit cards have an impact on your credit score. If your credit cards are maxed out, your credit score will have an impact and be lower than it could potentially be if you had lower balances on your credit cards. As a rule of thumb, keep your balances below 50% of the credit limit to keep your credit score as high as it potentially can be without negative impact.

Credit Scores could be the single most important factor when determining your solvency to actually pay back a loan on a mortgage. The higher the credit score, the better. Anything above a 720 score, will give you the most favorably terms with regards to financing.

Another impact to your credit score is the type you credit you have. Creditors want to see a variety of debt that you hold. Ideally you want to have all three kinds of debt: Revolving(i.e Credit Cards), Installment(i.e. car loan) and Mortgage Debt.

It helps to keep older revolving accounts open, rather than closing old credit card accounts. The length of time you have had open credit established is a consideration for your what impacts your credit score as well.

Late payments are a factor that can impact your credit score. Be sure to make your credit card and mortgage payments on time to maintain a good credit score.

Your credit Scores will be greatly affected by the amount of credit you have used compared to the maximum amount of credit available. This is called credit utilization. For example, a credit card with a maximum limit of $5000 with a $4500 balance will hurt your score more than the same card with a $2000 balance. When you are applying for a mortgage it may be smart to pay down your credit cards to less than half of their maximum limit. This helps your score because it shows that you use credit sparingly and are therefore less of a risk to the lender.

Collection accounts will have a seriously negative impact on your credit score. The newer the collection account, the greater the impact on your credit score. As a collection account gets older, it has less of an impact on your credit score. Generally after a collection has been on your credit for 7 years from the date of last activity, then the collection account will be removed and no longer affect your credit score.

Major items to avoid are judgements, child support, IRS or personal liens. They will have a negative impact towards your credit score. Even if the negative items are paid, they will remain on your credit for 7 years.

Other impacts to your credit scores are inquiries. Every inquiry diminishes your credit score from 3-6 points. Things to avoid during the loan process is shopping for a new car, requesting a new credit card or over extending your credit.

» DISCLAIMER: The information contained in this article on 'What Impacts Credit Score' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.