Mortgage lenders use your credit score to evaluate your creditworthiness because it is an essential factor in determining your financial situation. But there are some factors that, if not up to par, are detrimental to your score rating, significantly reducing your capability to get a loan or to qualify for a loan application, so there is an additional need to pay attention to those factors so that your credit score gets maintained and, whenever you need a loan for any specific reason, you experience no hurdle to getting it. We at MortgageKey will tell you the factors that affect your credit score.
Factors affecting credit scores
The criteria for creditworthiness differ from lender to lender, but five main factors play a significant role in credit score credibility.
Financial history: The most crucial component of credit scoring is payment history; even one late payment will lower your score. When lenders assess your application for new credit, they need confidence that you will repay your debt on time. 95% of lenders use the Fico score model, and your payment history makes up 35% of it.
Credit utilisation: Your credit usage is the second-most important factor in determining your credit scores. You can evaluate your credit usage ratio by dividing the total amount of revolving credit you presently utilise by the sum of all your revolving credit limits. It accounts for 30% of the Fico Score Model.
Credit history duration: 15% of your FICO® score is determined by your credit account period. This includes the ages of your oldest and newest credit accounts and the average age of all your funds. Your credit rating will typically increase with the length of your credit history.
Credit infusion: Those with high credit scores have multiple credit accounts, so consider this point as 10% of the FICO® score is based on the credit mix.
Brand new credit:10% of your FICO® score is based on how many new credit accounts you have opened and how many tough credit inquiries lenders make when you ask for credit. Having too many accounts or inquiries may harm your credit score, which can be significantly risky.
To improve your credit score, you need to consider these factors.