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Things That Can Affect Your Credit Score

Palladino Lending—Helping You Find a Credit Solution!

Here at Palladino Lending Solutions we’re acutely aware of just how important your credit is; from securing a loan or mortgage, financing a new vehicle, or simply qualifying for a credit card, your credit score can have a serious impact on your life. With that being said, we also know how unpredictable life can be, and we don’t believe that any mistakes or unfortunate circumstances should hamper your ability to live life in any way. 

That’s why we call ourselves Palladino Lending Solutions, with emphasis on the Solutions aspect. We can’t change or affect your credit situation but we can help you find a solution, which is exactly what our credit experts do each and every day—finding ways for you to improve your credit while also finding you a vehicle that suits your needs. So if you’re ready to get back to prime, click the link below. Otherwise, read on and learn about some of the things that may affect your credit score.

Five Major Influences On Your Credit Score

These five factors have the largest impact on your credit score, and are things you’ll want to be aware of in your everyday life:

Payment history

How much debt you have (credit utilization ratio)

Credit history

Types of credit

Credit inquiries 

 

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Now we’ll break down exactly how these can impact your credit score, as well as how large a role they play in your credit score.

Payment History

This one is pretty self-explanatory and probably the most important when it comes to building or maintaining a strong credit score, since 35% (or about one-third) of your credit score is determined by your overall payment history. From your credit card bill to any loans you might have (student, mortgage, car, etc), paying the correct amount on time is a sure-fire way to maintain your credit score. Conversely, not paying on time or not paying the full amount will have a negative impact on your credit score. Since credit bureaus will report your payment activity—whether you pay late or on time—you don’t need to sweat the odd late payment. But the more often it happens, or if it moves toward credit delinquency (or if your debt is turned over to collections) it will definitely have a negative impact on your credit score overall.

How Much Debt You Have

The amount of debt you have accounts for 30% of your credit score. It’s important to know that having debt doesn’t make you a credit risk, but having a number of lines of credit (especially if maxed-out) doesn’t look good. Your credit utilization rate plays a major role in this, and the higher your ratio combined with the more credit accounts to your name, whereas having a number of credit accounts with a low credit utilization rate can show that you’re safe to lend to. To calculate your credit utilization ratio, simply compare how much credit you have to your name with how much you’ve used; e.g., if you have two credit cards with $1,000 limits, and you have a $200 balance on one and a $300 balance on the other, you have a $500 balance on $2,000 worth of credit. This works out to a credit utilization rate of 25%. Anything below 30% will have a positive impact on your credit score (the lower the better), while anything above 30% will start to look like a bit of a red flag.

Credit History

Your credit history—or credit age—has a 15% impact on your credit score, i.e. how long your credit account has been open, or how long you’ve had any open credit accounts. While this may seem to favour people that are older, you must also consider that the longer you’ve had available credit, the more payments you will have needed to make (and the more opportunity to overextend yourself and your credit). This also includes an average age of all your combined lines of credit, in which you combine the age of each account and divide by the total number of accounts. It’s this metric that offers creditors a bit more insight into how much of a risk you may be when it comes to a new credit account.

Note that, while sometimes it may seem like a good idea to close a credit account, this might be something to avoid if possible. Closed credit accounts will stay on your report for seven to ten years, however, it would be a shame if your credit history was negatively impacted by closing out your oldest credit card.

 

Types of Credit

The types of credit you have accounts for 10% of your entire credit score. For those unaware, there are two types of credit that exist; revolving credit is a line that becomes available to you as soon as it has been paid, while installment credit is a lump sum you pay off over time at a fixed rate.

Revolving Credit

  • Credit cards
  • Personal lines of credit
  • Home equity lines of credit

Installment Credit

  • Auto financing
  • Student loans
  • Mortgage
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Having both types of credit in your file will have a positive impact on your credit score, more so than just having one type. Of course, with either type of credit it’s important to responsibly maintain the account (as to positively affect your payment history and credit utilization ratio.

Credit Inquiries

Credit inquiries also impact your credit score by 10%, though it’s important to note that there are two types of credit inquiries. A soft inquiry won’t impact your credit score, but a hard inquiry—when a financial institution checks your credit to determine if you qualify for a loan—absolutely does. This is important as it gives the lender a bit more insight into an aspect of your credit history; also, more of those loan applications approved will lead to more new lines of credit—lowering your credit age and history. 

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Let Palladino Lending Find You A Solution

As we mentioned earlier, we can’t turn back the hands of time to have an impact on your credit score—but we can offer you sage advice on how to improve your current score or rebuild completely. Our goal is to help you improve your credit, which will lead to qualifying for continually lower vehicle interest rates. This is a judgement-free zone, after all, we’ve all been or known someone that was dealt a bad hand; we’re just here to help you pick up the pieces and get your credit back on track. If you’d like to learn more simply give us a call, and when you’re ready to start shopping for a new or pre-owned vehicle let our credit experts help!