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“We’ll just need to run your credit.”

This is a phrase you’ve probably heard if you’ve ever applied for financing (e.g., a loan, line of credit or credit card) or to rent an apartment or house.

If you want to increase your chances of being approved for financing – and sometimes getting a more favorable rate when you do – having a healthy credit score (also known as a Fair Isaac Corporation “FICO®” score) is essential.


Here are six factors that determine your credit score and a tip to improve your score related to each.


FACTOR 1: Are you always on time?

Your payment history has a high impact on your credit score.

Do you pay your debts on time? This information is tracked and recorded, and a missed payment can stay on your credit report for up to seven years.


TIP 1: ON-TIME payments are good for your health!

As elementary as this sounds, making payments on time is VITAL to your score. Even ONE late payment could hurt your credit. Use discipline, be responsible and pay on time, every time.



FACTOR 2: How stable is your relationship with debt?

The amount of debt you owe also has a significant impact on your credit score.

This factor shows your relationship with debt and contributes to determining if you can handle what you owe.

Credit card usage is an important factor here. The formula for calculating your credit card usage rate is simple: Total Credit Card Debt / Total Credit Available (e.g., if your credit card debt is $2,000 and your credit limit is $20,000, your credit usage rate is 10 percent).

The lower the percentage, the better it is for your FICO score.


Tip 2: The speed limit is 30.

While less than 10 percent is excellent, keeping your credit card usage rate under 30 percent is a good guideline to follow. And remember, you don’t need to carry any debt on your credit card to build your credit.



FACTOR 3: Is your credit aging gracefully?

Your credit age is another important factor. This refers to how long you’ve held credit accounts. Credit length is important because lenders like to see that you have experience using credit responsibly. Generally, the longer a credit account has been open, the better.


Tip 3: Let your credit age like a fine wine.

Improve your score by keeping credit accounts open and in good standing. Know that your oldest accounts give you the longest credit history.



FACTOR 4: Do you “shop ‘til you drop”?

New credit inquiries indicate that you have or are about to take on debt.

It’s important to know the difference between a “hard” and a “soft” credit inquiry. Each time you apply for a new line of credit, that application takes a “hard” hit, which shows up on your credit report and can affect your score. Be careful when rate shopping for loans or credit cards that you’re not applying for too many lines of credit, which can hurt your score.

A “soft” hit, like when you request your own credit report, does not affect your score.


Tip 4: Plan it, don’t drop it.

 If you know you’ll need a large loan (e.g., a mortgage) down the road, minimize your credit inquiries a minimum of nine-to-12 months in advance of applying for the loan. Also, limit the number of “hard” inquiries you have in a short period. This can help your score from dropping.



FACTOR 5: What’s your type?

The types of credit you use can also impact your score.

Generally, having a mix of credit account types (e.g., credit cards, lines of credit, loans, etc.) helps your score, provided you use them responsibly.


Tip 5: Eat at the buffet, but know your limits.

Having a variety of credit sources can help your score. However, use your credit types appropriately and responsibly (e.g., using your credit card to purchase a big-ticket item such as a pontoon could hurt).



FACTOR 6: Is someone saying bad things about you?

Avoid derogatory marks. Having a derogatory mark on your credit report means there’s an item on your account that is past due or at credit risk. This, too, can have a high (negative) impact on your score.

A derogatory mark could be a late payment of 30 days or more past due, or a negative public record such as a bankruptcy, foreclosure or repossession.


Tip 6: Have no room for negativity.

Avoid derogatory marks at all costs. Pay your bills on time to stay away from debt collections and negative public records.

Bonus Tip: Check your credit report regularly (there are various ways check your credit score for free online). Make sure all the inquiries made on your report are by you. If you see an inquiry that you don’t recognize, you can dispute the error to the appropriate credit bureau.


Want to learn more about your credit score? Check out Park Bank’s Credit Sense!


Let’s get your credit score to next!