Most people realize that making their payments on time is crucial to a high credit score. However, there are also several other factors that are important in the calculation of your credit score.
Here are some important and surprising facts about credit scores:
1. A persons income level is completely irrelevant when it comes to their credit score. Someone who earns millions every year could very well have a low credit score while someone who earns minimum wage may have a very high credit score. Credit scores are based upon the management of the money that one has rather than the quantity of money that one has.
2. Length of credit history. Credit scores are based upon how long your credit history is. Older accounts are scored higher than more recently opened accounts. If you intend to pay off the balances of some of your debt, pay off the most recently opened accounts before you pay off the older ones if possible. Same goes for credit cards, use the older ones before the newer ones.
3. Beware of paying off collection accounts. Credit information is based upon the date of the last activity. If you have an old collection account that has not been active for awhile the negative impact is being reduced by time, but if you pay it off you start the clock back at the beginning and even if it shows a zero balance it still shows that it was delinquent. Some things are better left alone, especially if it has been on your credit report for more than 2 years.
4. Debt to Limit Ratio. The credit bureaus want you to have credit available but not use too much of it. Try to keep your debt ratio below 30% of the amount you have accessible in order to have the highest scores.
5. Inquiries on your Credit report. Every time you apply for any type of credit it shows as an inquiry on your report and it reduces your credit score. Try not to even apply for credit unless it is absolutely necessary.
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