Several factors account for your credit score, and some are weighed more than others. You can control some of the factors associated with credit score, but other factors are more abstract. This can lead to plenty of questions. Is it better to be close to a credit card debt payoff or carry a balance on your cards? Are there benefits of having multiple credit cards? Understanding these questions can help you better control your financial outlook while understanding how these factors impact your credit score. Let’s take a closer look.
Utilization: How Far Are You From Credit Card Debt Payoff?
Credit card utilization is how much of your total credit you’ve used. Being near the limit of your credit card utilization can be a negative credit factor while being closer to credit card debt payoff is preferred. Whether you have one credit card or four, it’s not necessarily a bad thing to have money charged to the account, as long as you pay the balance off each month to quickly achieve credit card debt payoff. This factor can prove to lenders that you’re a reliable borrower.
Payment History: Are You Paying On Time?
Your history of payment is a significant factor in determining credit score. Payment history is one of the most important factors that lenders look at. It shows that if they choose to lend you money or extend a line of credit, they can reasonably assume you’ll make payments on time. As mentioned above, this shows you are reliable in paying your debts. If you have multiple late payments, that could lead to a negative credit factor. Meanwhile, paying on time on all of your accounts can be a positive credit indicator.
The Number of Cards Open: How Does This Impact Utilization?
A single credit card with high utilization can be a negative credit score factor. Having multiple cards open, thus a larger amount of credit, with the same debt spread across them, is considered positive credit score factor. This can also impact your APR, as different credit cards typically feature different APRs. If you need to know more about how your APR will affect a card and your utilization, use a credit card interest calculator.
Credit History Length: How Old Is Your Oldest Card?
The longer credit card accounts have been open, the better for a person’s credit score. The longer they’re open, the better. Having multiple credit cards open for a few years is a positive factor. Having a few credit cards that are only a year old and no other open cards could be a negative credit score factor. Lenders are unsure if you are trustworthy enough to give a loan if they don’t have enough time to judge how you manage your credit cards. However, over time that can change. Be sure to use the old cards occasionally, so they aren’t closed for being inactive. You may have achieved credit card debt payoff on the cards, but may consider using them to keep them active and have a positive credit score factor.
Number of New Accounts: Limit Hard Credit Checks
Opening multiple new accounts in a short amount of time can also be a negative credit score factor in another way. Each new account requires a hard credit check, which can have a negative effect on your credit score. Lenders will see that you’re in the market for more and more credit, which might be indicative of potential risk. So, if you want to open a new account, be strategic with how often you allow hard credit checks to occur.
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