Factors that Raise or Lower Your Credit Score

Credit history. Older borrowers definitely have the advantage when applying for credit since they have a longer credit history. Having a brief credit history is a disadvantage and can lower your credit score, but it is not a significant factor. If it were, few young people would have credit cards and auto loans, and this isn’t the case at all. You can overcome this by showing stability and financial responsibility — stay at the same job for awhile, stay at the same residence for awhile, have a phone in your name, having both a checking and savings account, and pay all your bills on time.

Too many accounts or not enough accounts. People who are constantly opening and closing credit card accounts in order to transfer balances and get a better deal might be doing more harm than good as every time a new account appears as opened or closed on their credit report their credit score increases or decreases. If you want to transfer a credit card balance to one with a lower interest rate, that’s fine, but don’t do it in the year before you plan to apply for a mortgage loan as it might cause you to pay significantly more for the purchase of your home.

People might find it surprising that they can’t increase their credit scores by not using credit or financing.

A big part of your FICO credit score calculation is how you’ve been handling credit in the past six months. If you haven’t used a credit card or made a payment to anyone in the last six months, then your credit score is going to be adversely impacted because to calculate an up to date credit score, FICO needs at least one open account that has activity reported on it within the last six months. Of course, not using credit for a long period of time doesn’t mean you won’t qualify for financing. It means that your interest rate will be higher.

Applying for a new credit card, mortgage or car loan. Unless you don’t have much of a credit history and haven’t established a credit rating yet, applying for a new credit card, a mortgage or auto loan can lower your credit score by about 10 or 15 points. If you have not used credit much or have a short credit history, applying for a new credit card, mortgage or auto loan could raise your credit score by ten or 15 points. Never purchase a car on time in the months before applying for a car loan as it increases your debt load and lowers your credit score, causing you to pay significantly more for your house.

Editor’s Note:

We at Jewelry Outlet always want to remind our customers why it is important for them to obtain and responsibly use credit. One helpful way to improve one’s credit is by adding a trade line and then only using a small portion of the trade line. This is an example of utilization, which is 30% of the credit score calculation. Thus with a top score of 850, the utilization category is 255 points of the total credit score (850 x .30).

If someone had one department store trade line of $500, but had maxed out the trade line by charging $500 of goods and services, then this person would lose almost all of the 255 points (out of 850), having a very high utilization of 100%. Thus assuming all other things on the person’s credit report were good, the highest credit score this person could achieve might only be 595 (850 – 255), as this person might lose all points for having a high utilization.

But if this person obtained another trade line (maybe a jewelry store account) for $5,000, now the person’s utilization would be only 9% ($500/$5,500). Thus this person’s credit score would increase, maybe by as many as 200+ points, possibly bringing the score up to over 800.

The person’s interest rate on an auto loan with a 595 score might be as high as 20%, whereas the interest rate with an 800 credit score might only be 2% to 5%. If someone purchased a $20,000 car, the lower interest rate would save $250 per month, for having good credit and low utilization.

This is the power of low utilization. And this why it is important to obtain a jewelry store trade line with a high limit.

Jewelry Outlet is the number one online jewelry retailer to help you enhance, establish and/or rebuild your credit. We offer easy credit terms for people with bad credit, new credit and no credit. Click here to Apply for Credit

Posted by Christian C Culpepper