Credit scoring models can vary among creditors and for different types of credit. However, scoring models usually evaluate the following types of information in your credit report:
Bills paid on time – Payment history is important. Things that can hurt your credit score include paying bills late, declaring bankruptcy, or having an account referred to a collection agency.
Outstanding debt – What is the amount of debt you have compared to your credit limits? If the amount that you owe is close to your limit, that will probably hurt your credit score.
Length of credit history – You can view your credit history as the track record you’ve established. If your credit history is short, that might affect your score. However, other factors—such as making your payments on time and keeping low balances—can help your credit score.
Recent applications for new credit – Applying for too many new accounts might hurt your score. (How do they know if you’ve applied for several accounts recently? The scoring model looks at “inquiries” on your credit report when you apply for credit. Not all inquiries are counted. For instance, inquiries by creditors who are just monitoring your account…or looking at credit reports to make prescreened credit offers aren’t counted.)
Number of credit accounts – It’s good to have established credit accounts, but too many credit card accounts might hurt your score.
Types of credit accounts – Some credit scoring models look at the type of credit accounts that you have. Under some models, loans from finance companies might hurt your credit score.
To improve your credit score, you should:
- Pay your bills on time
- Pay down outstanding balances
- Not take on new debt
