There are a lot of factors that go into play when a consumer is trying to increase their Credit Score. Overtime, they will notice the score increase and sometimes decrease without knowing the cause. Most consumers get their knowledge about Credit from family, friends, and of course, the internet. While some of this information may be true, some of it is false as well. Lets quickly go over The Top 3 Things That Keep Your Credit Score From Increasing.
1. Payment History.
I know, I know. You have heard this a million times and yet some people continue to make late payments. 35% of what makes your Credit Score comes from your “Payment History.” In simple terms, 1 late payment is equivalent to 3 on-time payments. 1 late payment can decrease your Credit Score over 30 points or more! The higher the score, the more it will decrease it. What exactly is a “late payment?” FICO (Fair Issac & Company) defines a Late Payment as a payment that is made 30 days late or more. That means a consumer can have a due date of let’s say 5/1/2015, pay it on 5/12/2015 and it WILL NOT decrease the Credit Score. But, if that payment is due on 5/1/2015 and the payment is made on 6/3/2015, it will be considered 30 days late and it will show as a 30 Day Late Payment on the credit report. In short, never make a late payment.
This is one factor many consumers don’t know about. 30% of makes your Credit Score come from “Amounts Owed” better known as “Utilization.” Credit Card Utilization is calculated by the balance/limit. For example: If your limit is $1500 and your current balance is $1300, then your utilization is 0.866 or 87%. FICO says to maintain a high credit score, its ideal to keep your utilization between 5%-30%. So using the same limit above of $1500, your score would benefit from the balance being between $75-$500. It’s important to note that consumers with credit scores above 780 or higher, tend to keep their utilization under 7%.
3. Length Of Credit History
Consumers that have a FICO score of 780 have an average account age of 11 years and the average oldest account was opened 25 years ago! 15 % of what makes your credit score comes from “Length Of Credit History.” This factor shows how long a consumer can keep an account opened with good payment history and a low utilization. Most consumers don’t know that by closing accounts, it affects your credit history by shortening the age length of accounts. Of course, some accounts must be closed and some accounts will close automatically due to non-usage or if a loan account has been paid in full. For example, if you have an auto loan for 4 years and you have paid the vehicle off, then this account has been paid in full and will close itself. This is where the average account age of 11 years would come into play. Another example would be a consumer opening a credit card and keeping that account open for over 25 years and never closing it. Keep in mind, just because the card account is open does not mean you have to use it. Be sure to read your full disclosure for your credit card to find out more about it.
The Bottom Line
Now you know the Top Three Things That Keep Your Credit Score Increasing. Of course, these are the top 3 factors, but there are more factors that would keep your score from increasing such as: Collections, Public Records, Civil Judgments, Charge-Offs, Default Accounts, Wage Garnishments, Tax Liens, Bankruptcies, or Unpaid Child Support.