When applying for almost anything – from a car loan to a phone plan – 90% of lenders check your credit score.
How that score is determined, though, can be confusing. Here are the important factors that determine you where you land on the credit scale.
#1: On-time payments
35% of your score is based on payment history. Once a payment is 30 days overdue, it starts hurting you. This is why budgeting is the BIGGEST factor when it comes to your score – paying on time is crucial.
#2: Utilization rate
30% of your score is determined by credit utilization rate, which means how much of your total credit limit you’re currently borrowing. For example, if you have a $1,000 credit limit and you've spent $200, your credit utilization rate is 20%. It’s best to keep this below 30%.
#3: Credit Inquiries
“Hard” credit inquiries –like applying for a new credit card or apartment – make up 10% of your score. It’s best to do your research and never apply for something you don’t need, because too many “hard” inquiries hurts your score.
Higher credit scores can often determine many things, like our access to housing – which can drastically affect our quality of life. That’s why understanding how the system works is so important!