Five Credit Score Factors
You need to understand how your credit score is calculated before you can fix it. A credit score dropping could be a sign of many problems. To start with, here are the five factors used to calculate the credit score, along with the weight, it has been given:
- Payment History is 35%
- Credit Utilization Ratio is 30%
- Credit History Length is 15%
- New Credit is 10%
- Credit Type is 10%
Some of these calculations are counter-intuitive; for instance, you might have very good intentions in repairing your credit, but your actions might be causing it to fall. What are some concrete examples of how this can happen?
Closing Credit Card
You might have worked diligently to pay off an entire credit card. Then, you might have closed the credit card account, thinking that your score would rise. Unfortunately, by closing your account, you have reduced the amount of credit available, so your score might drop.
Sometimes, it might take time for a negative mark to be added to your report. A court might have issued an order that lowered your score. You should check your credit report every year.
Applying for Credit
Here is another one that is counter-intuitive. Every time that you apply for a loan, your credit score might fall a little. Why? Banks believe that those who apply for loans regularly are having problems paying their bills. Financial institutions might see your loan application as a cry for help. You need to time your loan applications carefully.
Maxed Out Credit Card
If you are trying to repair your credit, you might try to max out an entire account. Once again, this might not be the wisest decision. Your credit score dropping could be due to having too much debt on one account. The best course of action is to have 33% to 40% of credit available on each card. This makes it look like you are faithfully handling your financial responsibilities. Financial institutions keep very good track of everything that you do.
Credit Repair Services
Credit scores are vital to all facets of your life. Unfortunately, the arcane credit score system can be very difficult to comprehend. Fortunately, you can contact professional credit repair services to help you raise your score.