What Factors Affect Your Credit Scores?

We always hear people talking about how important it is to maintain a good credit score but most people don’t necessarily know what to watch out for. Several factors affect one’s credit scores such as whether bills are paid on time and the length of time the credit has been used. It is important to understand specific factors that affect your credit scores to maintain and protect them. 5 major factors will be discussed in this article down below ranging from most important to the least important.

1. Most important: Payment History

The most important credit-scoring factor and can have the biggest impact is Payment History. It is best to have a long history of on-time payments for your credit scores because well, missing payments hurt them a lot. The effects of missing payments can also increase the longer a bill goes unpaid. For example, a 60- or 90- day payment is much more effective than a 30-day late payment. Late payment affecting your credit score can differ depending on how much is owed. Many of you might be thinking, ‘Will my credit score improve if I start to pay everything on time?’. Yes, of course! When you start making on-time payments and/or actively reduce the amount owed, the effect on your scores can diminish over time.

2. Very important: Credit Usage

Why is credit usage a very important factor? It may be able to quickly change to improve or even hurt your credit health. Every installment loan links to your credit scores such as personal loan, mortgage, auto loan, or student loan, and these will all affect your current utilization rate. Utilization rate is the ratio between the total balance you owe and your total credit limit on all revolving accounts like credit cards and lines of credit. Therefore, maxing out your credit cards or leaving the balance unpaid is not the best idea as it damages your credit scores. Keeping your utilization rate low is the best option if you are looking to apply for any more loans in the future.

3. Somewhat important: Length of credit history

There are several factors related to the length of your credit history that affects your credit, these include:

Age of oldest account
Age of newest account
The average age of accounts
Whether any accounts have been used recently

The opening of new accounts lowers the average age of your accounts, this hurts your credit scores. However, this can be offset by lowering the utilization rate and increasing your total credit limit, making on-time payments to the new card, and adding to your credit mix. Closed accounts stay on your credit reports for up to 10 years and the average age of your accounts increases. Once the accounts are dropped from the credit reports, it will lower this factor and hurt your score and the impact is going to be more significant if it is your oldest account.

4. Somewhat important: Credit mix and types

If you have experience with different types of credits like revolving credit card accounts and installment student loans, it may be helpful to improve your credit health. Since credit mix is not a major factor in how your scores will be affected, it is unnecessary taking a loan to pay interest just to add to it. Nonetheless, you may want to get a credit card and just use it for minor expenses that you can afford to pay off every month if you’ve only ever had installment loans.

5. Less important: Recent credit

Banks usually review your credit reports and scores when you apply to open a new line of credit. This action is known as credit inquiry which stays on your credit report for up to 2 years. These inquiries like checking your scores or credit card prequalification do not hurt your scores. But, hard inquiries like banks checking on your credit before making a lending decision can hurt your scores even if you don’t get approved for a loan. A single hard inquiry will have a minor effect unless there are other negative remarks, your scores will recover or even rise within a few months.

With all that being said, although credit scores are important, it is not the only thing that decides whether one will be approved of a business loan. There are other ways of applying for loans for example through private lenders like Finsource Credit that can offer up to RM10 million to business owners with simple requirements. The 3 different types of loans that Finsource Credit offers that cater to most businesses’ needs include clean loans, property secured loans & 2 in 1 financing which allows you to lend up to 100% of your assets market value.

To find out more in details on what the requirements are to fulfill to be approved for a loan within just 10 days or to know more on how our loan works, our financial experts are always ready to answer your inquiries 24 hours a day and provide professional credit counselling if you ever need one so don’t hesitate to contact us and get your cash today!

: 03-2712 4333