If you are planning on applying for a loan in the near future, then you need to make sure that you place your application in the best position possible to be successful. This means conducting a credit check before you apply for that loan.
When you were looking at your credit score, you want to make sure that it is as high as possible. This is going to maximize your chances of getting approved for your loan in addition to keeping your interest rate as low as possible.
At the same time, when you are looking at your credit score, what goes into that score? What determines how high your credit score is? There are several important factors to consider.
Payment History Is 35 Percent
Without a doubt, the biggest part of your credit score is your payment history. It makes up more than a third of your credit score. For example, if you have a long track record of paying all of your bills on time, and your credit score is going to be high.
On the other hand, if you have defaulted on a lot of loans or if you have a lot of late payments on your credit report, this is going to drop your credit score. Make sure that you pay all of your bills on time so that you can keep your credit score as high as possible.
Amounts Owed Is 30 Percent
Next, the amount of money that you owe is also going to play a role in your credit score. If you have a lot of credit cards, then it is a good idea to make sure that you keep your balance as low as possible. Even though you can place a lot of money on your credit cards in a single month, you should try to pay the balance of your credit card every month.
Try not to carry a balance, as this is going to increase the amount of money that you owe. As a result, this may also drop your credit score. Prevent this from happening by keeping the amount of money that you owe as long as possible.
Length of Credit History Is 15 Percent
Another factor in your credit score is going to be the length of your credit history. If you are someone who is relatively young, then your credit history is not going to be that long. Therefore, there may be a limit to how high you can get your credit score to go.
On the other hand, if you have a credit history that is decades-long, this is going to maximize your credit score. The longer you can go without missing a payment, the higher your credit score is going to be.
New Credit Is 10 Percent
New credit is also going to play a role in your credit score, even though it is relatively minor, if you have a lot of credit inquiries, this may hurt your credit score slightly. Of course, when you apply for a loan, they are going to check your credit score.
A hard inquiry is going to show up on your credit score for approximately 2 years. Even though it is possible that hard inquiries may hurt your credit score slightly, some of them are going to be ignored. Therefore, if you are applying for a loan, do not worry about them checking your credit.
Credit Mix Is 10 Percent
Finally, your credit mix is also going to play a role in your credit score. Diversity is going to help you increase your credit score. Some of the factors that may play a role in your credit mix include credit cards, retail accounts, finance company accounts, mortgage loans, and installment loans.
If you have a nice, diverse mix a credit on your credit report, this is going to help your credit score. Therefore, take a look at everything that is involved in your credit score and all of the accounts that you have. If you are able to manage all of these accounts well, it is going to help your credit score in the long run.
Check Your Credit Score Today
If you are thinking about applying for a loan in the near future, then make sure that you check your credit scores today. You want to make sure that your credit score is as high as possible before you apply for that loan. That way, you can maximize your chances of your loan application being approved.
Furthermore, the higher your credit score is, the better terms you may get on that loan. Remember that you can check your credit score for free once per year. Make sure that you take advantage of this and correct any inaccuracies that might be present in your report.