Credit Score: Understanding Its Impact - learn.firstdigitalcard.com

PAYMENT HISTORY

Your payment history is the biggest factor in your credit score and reflects your track record of paying on time.¹ Timely payments contribute to a stronger credit score.

Credit Utilization

Credit utilization is the amount of credit you are currently using compared to the overall credit available to you. Experts recommend keeping your utilization below 30%, as this shows responsible credit management and has a positive impact on your credit score.

Age of Credit History

The age, or length, of your credit history shows your consistency in managing credit over time. A longer credit history gives lenders a better look into your financial responsibility and will help drive your score higher.

CREDIT MIX

Maintaining a diverse credit mix can positively impact your credit score. It indicates to lenders that you can handle a variety of financial obligations. However, it is important to note that this does not mean that it’s a good idea to take on unnecessary debt for the sole purpose of diversifying your credit mix.

NEW CREDIT PULLS

When you apply for new credit, a “hard pull” of your credit is conducted, which results in a minor short-term negative impact on your credit score. Too many new applications for credit indicates a higher risk to lenders, so you’ll want to keep the amount of hard pulls on your credit report as low as possible.

Understanding your credit score and the elements that comprise it is crucial since it affects so many aspects of your financial life including:

Loan Eligibility:

A higher credit score will increase the likelihood that you are approved for loans and credit products.

Interest Rates:

A better score makes you eligible for more favorable interest rates.

Rental Applications:

A solid score makes you a more favorable candidate to landlords and rental agencies.

Financial Freedom:

A good credit score provides you with greater financial opportunities.

Future Opportunities

A higher credit score will open the door to larger financial goals like home or car ownership.

Becoming familiar with your credit score is a big part of financial literacy and will help you to proactively manage and improve it and take the necessary steps in credit recovery.

Source: Experian.com – https://www.experian.com/blogs/ask-experian/crediteducation/score-basics/what-affects-your-credit-scores/

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