The credit score is the value that reflects your ability to handle finances. The lenders use this to calculate the likelihood of your ability to pay the money back. Various factors play a key role in the calculation of this credit score. You must take your credit score seriously, especially when planning to take a mortgage. With a good credit score, a Certified Mortgage Broker will help you to get the best offers from lenders. To have a good credit score it is essential to understand the factors which impact your credit score.

Payment History

Payment History plays a crucial role as the credit bureaus look into how you have paid your previous debts will help them to have clarity about how you will pay them back. They will look for details like deferred payments, payments made according to the agreement and whether the debts has been paid completely or partially. The history will also show if the loan was paid as a collection. Whether you have filed for bankruptcy.

Amount Owed

A significant chunk of the credit score is also dependent on how much you currently owe. The higher amount you owe, the more difficult it becomes to keep up with the payment. This also increases the chances of defaulting and the scores lowering. Many people believe that they can manage more loans but otherwise holds true. When you keep increasing your credit limit regularly, it won’t improve your scores. It is suggested to have your credit utilization be lower than 30%. Going above 60% is strongly advised against. The larger the loan, the more risk it is for the lender.

Length of Credit History

It is reflective of how long you have stayed with a loan. This information is used by the lender to determine how you use the credit. Also, whether you will be able to keep up with the regular payments or not. The time shouldn’t be too long or too short. If you have taken too much credit in a short time, then you might not come across as a responsible borrower. It is always best to use minimal credit over a long time.

New Inquiries for Credit

Whenever you start to inquire about new credit, it serves as a sign of financial difficulties. The frequency with which you apply for loans reflects your financial mess. When the borrower inquires about you, it also shows how many times your credit history has been checked. When your credit score for the past five years has been looked at many times or you have opened too many credit accounts, then it will show on your credit score.

Diversity of Credit

Diverse credits can have a positive or a negative impact on the credit score. If all other essential factors have been positively impacting the credit score, then this won’t reduce your rating. The opposite is not true. When you use different credit products properly it can show how responsible you are. IF you have paid all your line of credits and credit cards in full on time, then the lenders will trust you.

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