Your credit score is the most important figure in the financial aspect of your life. Whether you’re looking to take loans to start a business or buy a house, the credit score will determine whether you get a loan and what the interest rate will be. So, knowing the things that affect your credit score will prove helpful in maintaining a good score.

Factors that affect credit score
Let’s understand the common factors that affect credit score:

• Payment history
  Payment history is the single most important factor in determining your credit score and accounts for 35 percent of your score. FICO states that the past long-term credit behavior is used to forecast a borrower’s long-term behavior for the future. Both credit card loans, as well as mortgage and student loans, are taken into consideration when evaluating the payment history. So, making consistent and timely payments is very important to ensure that your credit score is well-maintained.

• Amount of debt
  There might be a situation wherein you’re repaying your debts on time, but finances have reached a saturation point. This is the second biggest component of your credit score and accounts for 30 percent of the overall score. Within this factor, there are three important points to note. First is the proportion of the total available credit that has been used, second is the amount owed to specific types of loans like a mortgage, and third and the last one is the total amount owed and how it measures as compared to the original loan.

• Credit age
  Credit history holds a weightage of 15 percent of your credit score, and there are two main factors that affect credit history. First is your oldest account’s age, and second is the average age of all your accounts combined. In the latter, the age of each account is added and divided by the total number of accounts. Also, the older your accounts are, the better your credit score is.

• Account mix
  Your credit mix affects 10 percent of your credit score and is one of the common factors that affect the score. Two types of credit accounts make up the account mix: revolving credit or credit cards, and installment debt or loans like mortgage, car loans, and student loans. If you have taken loans in both the categories and have been making regular repayments, the credit score is automatically improved.

• New credit
  Ten percent of your credit score is determined by new credit, and the average account age will reduce if you have new credit accounts. However, this does not indicate that credit score will get better if you accumulate loans over a short period. In fact, that will point toward financial instability, which may harm your credit score.