As the New Year approaches NOW is the time to think about your credit. There is never a time like the present time to set financial goals and get to work. To do this, you really need to know your credit. Here are the top four credit score factors that shape the state of your credit:
Payment history – How consistent you pay your bills is the largest area of influence in your credit score. Creditors want to see an established history of timely payments, and missed payments or marks of an account being under collections are the quickest way to a decrease in your credit score.
Amounts owed – The relative amount you owe compared to the available credit limit is another at risk area in your credit score. It isn’t so much how much you owe, but how much you owe in relation to how much you are eligible to borrow. For example, a $10,000 line of credit with a $500 balance on it does not bring down a credit score like a $1,000 line of credit with a $500 balance. This factor typically calculated and referred to as debt-to-limit ratio; meaning, the relative amount borrowed to available.
Length of credit history – The overall time length of your credit history, including the average age of all of your accounts can also influence your credit score. Having a short credit history, or history in which the majority of your accounts are newer may result in a lower credit score.
Mix of credit – There are various types of credit accounts, each of which influence your credit in different ways. For example, unsecured debts like credit cards and unpaid bills can damage your credit score more so than having mostly secured debts like mortgages and auto loans. This is because secured debts are tied to assets and at risk of repossession if payments are missed, signaling a borrower’s potential level of responsibility.
If you are experiencing financial hardship or are at risk of having your debt obligations damage your credit score, contact our office of experienced Dallas bankruptcy lawyers today.