Understanding Your Credit Score

The following is a guest post by Norah Gondeck. 

There are five factors that may be affecting your credit score:

1. Payment history: By simply paying your bills on time, you will do well in this category. If you have a history of missing payments, you will not. Paying on time can mean the difference between an average and an exceptional credit score.

2. Debt: The amount you owe is compared to credit limit on both an individual account basis as well as an overall basis. Pay attention to your balances as they relate to your credit limits.

3. Length of credit history: Keeping your old accounts open and active may help to show a more established credit history. Opening and closing new credit accounts frequently may have an impact on your credit score.

4. Inquiries and new debt: Every time you apply for credit, an inquiry will appear on your credit report. Excessively shopping for credit and too many inquiries in a short period of time can hurt your score. Most often, when shopping for a mortgage, multiple mortgage-related inquiries within a short timeframe will be counted as one inquiry.

5. Type of debt: There are two main categories of debt: installment debt and revolving debt. Installment debt is a loan that is repaid by the borrower over a set period of time in regular (usually monthly) payments that include principal and interest. Examples of installment debt include an auto loan or mortgage. Revolving debt is money owed to a creditor who sets your monthly payments on your current balance. Credit cards are an example of revolving debt. A good credit mix would include both types of debt.