There are six factors that have the most bearing on your credit score which means it will behoove you to keep an eye on all of them if you hope to retain a score as close to 850 as possible.
Credit card utilization: You credit card utilization rate is how much credit you have available compared to how much you are currently using at any one time. It can be determined by simply dividing your credit card balances by the total limits of all of your credit cards. As such, it is beneficial to apply for a number of credit cards, even if you don’t ever intend on using them. It is important to keep in mind that this amount is not calculated based on the balance that is on any one card which means you don’t need to worry about maintaining a balance and rolling it over from month to month. It is always a better idea of pay off any credit card purchases as the end of month instead.
On-time payments: Paying your bills on time is one of the easiest ways to ensure you maintain a healthy credit rating. It is weighted very heavily when it comes to influencing your credit card score which means that is you miss a few payments your score is very likely to suffer as a result.
Derogatory marks: Derogatory marks on your credit score include liens, foreclosures, bankruptcies and accounts that are in collections. Each of these will affect your credit rating significantly, with bankruptcies and foreclosures being the most serious. Derogatory marks will stay on your record for up to ten years and, assuming they are accurate, there is little you can do about removing them early. The average amount a derogatory mark will decrease your credit is 50 points.
The monetary amount that led to the derogatory mark doesn’t matter when it comes to your credit rating which means that having a single dollar sent to collections will still hurt your credit 50 points. The date of the derogatory mark does matter, however, and it is based on when the negative action took place, not when it occurred.
For example, if you defaulted on a debt in 2012 but the account wasn’t sent to collections until 2017 then it will be list ed as a recent derogatory mark and the seven-year time frame will start in 2017, not 2012. Additionally, it is important to keep in ind that the derogatory mark will stay on your record regardless of whether or not you have since paid off the outstanding lien or collection amount.
Credit line age: The average age of your lines of credit simply refers to how long you have been building credit for. Lenders like to see that you have a long history of successfully managing credit as it makes is easier to determine of you are a risky investment or not. The longer your credit history, the more likely it is that you have been able to successfully manage your credit. As such, it is never a good idea to close out old credit card accounts, even if you don’t use them anymore. Not only will this decrease your total amount of credit, it will shrink your credit line age average as well. This doesn’t just apply to credit cards but also to personal loans, student loans, auto loans and mortgages as well.
Number of accounts: As a general rule, the more lines of credit you have, the higher your credit score will be as it shows you have been given credit by more lenders. Ideally you will want to have a mix of installment and revolving credit lines for the best results. This doesn’t mean you will want to go out and open as many credit cards as possible, however, as this factor weighs less heavily on your score than most.
Number of hard credit inquiries: Each time a lender checks your credit score for things like a mortgage, credit card, personal or business loan, student loan or auto loan, it will negatively affect your credit score by a few points. This effect typically wears off after a few months as long as you don’t make a habit of promoting these types of checks. The effect is cumulative, however, and having multiple hard credit inquiries in a short period of time is not recommended.