The all-important credit score is a record of your borrower past and determines your credit future. It tells your lending institution that you make your payments on time and how you borrowed and spent in the past. For many people, the credit scoring process is inscrutable and they are surprised when they are turned down at the bank because they don’t have adequate credit. Importantly, having no credit history is much different than having bad credit—kind of like having no luck is different than having bad luck. Individuals who understand their credit scores are less likely to have bad credit, enter into credit card negotiations or need a loan modification.
Do you pay your loans and credit card debts on time?
Even a single missed payment can lower you credit score. Of course there is a marked difference between missing a $50 credit card payment and a $400 mortgage payment, but it all adds up. You credit history is a profile of you as a good credit citizen.
How often do you request a line of new credit?
If you have many lines of credit and you pay on time, you get points because you are a bigger credit ‘fish.’ You might notice after having a couple lines of credit that you pay regularly on, you get new offers with better rates. Credit card companies want to push you to your credit bounds—they want to maximize you as a client. Your credit, then, isn’t just a history of your ability to pay back your debts as you say you will. It is an indication of your largesse as a creditor.
Types of loans and how long you have been a borrower
The types of loans you have a presence on your credit report. Long-term loans, like a mortgage that has been paid on time for years, shows your creditor you are a consistent, good faith borrower.
How different organizations evaluate credit varies widely. However, the aforementioned common sense indicators are a good predication of your credit score.