Your payment history accounts for over a third of your overall FICO credit score, comprising 35% of the impact of all FICO credit score factors. The chart below shows what factors impact your FICO credit score and how much each factor impacts your score. Read more about the factors that impact your credit score.

What is payment history?

Payment history is the record of all your past payments and whether they were paid on-time or late. Payment history can also include missing payments if no payment was ever made. Your payment history typically includes payments for all your credit cards, installment loans (e.g. vehicle loans and personal loans), retail accounts (e.g. store credit cards or purchases made using store financing or credit), and home mortgage loans.

Since payment history is so critical to having a great credit score, it is important to understand how your Payment history is defined and calculated.

How is payment history calculated?

How is a payment defined as on-time or late for the purpose of calculating your credit score?

Payments are reported to the three major consumer credit bureaus (Equifax, Experian, and TransUnion) as ‘on-time’ if they are made on or before the date they are due.

Many people wonder what happens if you missed credit card payment or missed credit card payment by one day. Does a one day late payment affect credit score? Fortunately, most lenders also provide a 29-day grace period after the payment due date before reporting a payment as late to the credit bureaus. If you make your payment during this grace period, your payment will be reported as on-time, exactly the same as if you had made it on or before the due date.

The examples below illustrate two different payment patterns and how each would be reported on your credit report and used to calculate your credit score.

Example 1:

All payments made on-time: payments made on or before the due date.

Example 2:

Payments made on-time, except April payment made 17 days late and August payment made 29 days late (after the payment due dates).

Key:

✓  Payment reported as ‘On-time’

X    Payment reported as ‘Late’

Note that while a payment made after its due date may still be reported as ‘on-time’ to the credit bureaus, a lender may charge you a late-payment fee for payments made after the due date or after a late fee grace period (e.g. 15 days after the payment was due) and a lender may increase your interest rate or decrease the amount of credit available to you.

Now let’s make one small change to Example 2. Rather than making your August payment 29 days late, the payment is made just one day later, so it was 30 days late. The payment history reported to the credit bureaus would now look like the following:

Example 3:

Payments made on-time, except April payment made 17 days late and August payment made 30 days late (after the payment due dates).

Your credit report will now show a 30-day late payment and this late payment will negatively impact your credit score. As you can see, delaying your payment by just one additional day significantly changes your payment history that is reported to the credit bureaus.

What is the impact of late payment on credit score?

Lenders will often report each payment to one or more of the three largest consumer credit bureaus (Equifax, Experian, and TransUnion). Lenders typically report when a payment was received: on-time, 30, 60, 90 days late, or never received. 

Many people wonder: how does a late payment affect your credit?  According to FICO’s credit damage data, one single recent late payment can cause your credit score to drop by as much as 180 points. This is because a late payment is a red flag to lenders that you may be experiencing trouble repaying your debts, making you riskier to lend to and a greater credit risk which increases the lender’s risk of losing money by lending to you. 

While a 180 point drop is a drastic change, you might only experience a credit score decrease that severe if you had excellent credit before the late payment and made the late payment very late (for example 90 days late). For most people a 30-day late payment would decrease their score from about 20 to 80 points. 

As you can see, a 700 credit score with late payments would be negatively impacted much more than a lower score with late payments. That said, if your goal is to get a 700 credit score, you need to avoid any late payments.

So the answer to: How does a late payment affect your credit score? Is really ‘it depends’ based on how late the payment was, what your score was before the late payment, and how recently the late payment was made. 

An unblemished or perfect payment history tells lenders that you are a reliable and low-risk borrower which increases your odds of receiving a new loan or credit card with lower interest rates. If you have a history of missed or late payments, you are considered a higher risk by lenders. However, it may still be possible to be approved for a loan or credit card with a bad payment history, though it often comes with a higher interest rate and lower amounts of credit being approved.

Using payment history to build credit

Many people want to build credit fast. While there are many programs and ‘experts’ that market how to build credit fast, the reality is that the best way to build credit is to establish a responsible pattern of on-time repayment over many months and years. The longer and larger your on-time payment history, the better. In fact, as you saw in the chart at the beginning of this article, Length of Credit History accounts for 15% of your FICO credit score. To improve your payment history, you must make on-time payments on all of your credit accounts. That’s it! 

So, how can you establish a great payment history to build credit? For people who already have good credit or great credit the answer is simple, continue to make your payments on-time.

For people with no credit, poor credit, or thin credit, there are also several options.

How to improve payment history on your credit report

For individuals with no credit history, bad credit, or limited credit history, here are three great options to build payment history and build credit:

1. Secured credit card
2. Credit builder loan / Credit builder account
3. Experian Boost 

Secured Credit Card

Secured credit cards are credit cards that require you to make a cash deposit before using them. Secured credit cards are available to just about anyone because they eliminate the lender’s risk. When you sign up for a secured credit card, you deposit cash with the lender equal to your credit line. You can then use the credit card to make payments just like a normal (unsecured) credit card.

For example, after making a deposit of $500 with a lender, you will receive a credit card with a credit limit of $500. You can use your secured credit card just like you would with any other credit card. If you don’t repay the lender, they simply deduct the amount you owe from the cash deposit you made.

Secured credit cards build your revolving account credit history for your credit mix.

Credit Builder Loan / Credit Builder Account

Many people don’t have the money to deposit $500 with a lender to obtain a secured credit card or don’t want to make a large cash deposit to get a credit card. Fortunately, there is a great option available for building payment history and credit without an up-front deposit requirement.

Credit Strong credit builder loans / credit builder accounts allow almost anyone to add a positive payment history to their credit report. All you have to do is pick a plan and make your payments on-time. With plans starting with monthly payments of less than $20 per month Credit Strong credit builder loans are affordable for just about anyone. 

Credit Strong credit builder loans are reported to the credit bureaus as an installment account on your credit report. Having an installment account included in your credit report is important to your credit mix and building a strong credit profile.

In addition, a credit builder loan allows you to build installment credit history and do not require an up-front deposit to get started. A side benefit is that as you are building your payment history, you are also setting aside savings, so you are building your credit and savings at the same time. A win-win!

It gets better, a Credit Strong account does not require a credit check to open, sometimes called a hard credit pull. You can open a Credit Strong credit builder loan account in less than 3 minutes 100% online on your phone or computer from almost anywhere.

Our credit builder loans have been rated as one of the best credit builder loans on the market. (We think it’s the best, but we’re biased.)

Credit Strong is a division of Austin Capital Bank, a 5-star rated independent community bank that is FDIC insured, so you know it’s legit.

Experian Boost

Many people think that utility payments (e.g. phone, gas, water, electric bills) are included in their credit report and credit score. Unfortunately, utility payments have historically not been used in consumer credit reports unless you defaulted on your account and it was sent to collections. Said another way, utility bills were only counted against you, never for you.

Recently Experian came out with a new product called Experian Boost. It allows customers to report non-debt payments like utilities and cell phone bills to the credit bureau.

Customers’ testimonials seem to indicate that Experian Boost can help your credit if you are just getting started building or rebuilding your credit.

One thing to note, if you plan to try Experian Boost, you have to grant Experian access to your bank account history so it can monitor your payments, so there is a tradeoff between the privacy of your financial information and building your credit.

How long does a late payment affect your credit?

To recover from bad payment history, you must make consistent on-time payments. After two years, your credit score should recover from the effect of the missed payments. Two years can feel like a long time for credit score recovery after late payment so it’s much better to try to avoid making ANY payments more than 30 days past due if at all possible.

Final thoughts on payment history and your credit score

Building a great credit score can take time, but almost anyone can improve their credit score with determination and good payment habits. 

If your credit score is currently suffering due to a poor payment history, take control of your score and credit life by starting a new pattern of on-time payment today. 

One of the best tools available for building payment history is Credit Strong since you can build a solid and long payment history for your credit profile with an installment account that reports your payments monthly to the three major credit bureaus and build your savings at the same time.

Now go out there and transform your life with strong credit!

FICO is a registered trademark of Fair Isaac Corporation. Credit Strong is a registered trademark of Austin Capital Bank. Experian is a registered trademark of Experian and its affiliates.

The post Payment History and How It Affects Your Credit Score appeared first on Credit Strong.

• The amount owed on all accounts.
• The amount owed on different types of accounts.
• The balances owed on certain types of accounts.
• The number of accounts which carry a balance.
• How much of the total credit line is being used on credit cards and other revolving credit accounts.
• How much is still owed on installment loan accounts, compared with the original loan amounts.

Credit utilization, one of the most important factors evaluated in this category, considers the amount you owe compared to how much credit you have available. For example, if you have a $2,000 balance on one card and a $3,000 balance on another, and each card has a $5,000 limit, your credit utilization rate would be 50%. While lenders determine how much credit they are willing to provide, you control how much you use. FICO’s research shows that people using a high percentage of their available credit limits are more likely to have trouble making some payments now or in the near future, compared to people using a lower level of credit.

Having credit accounts with an outstanding balance does not necessarily mean you are a high-risk borrower with a low FICO® Score. A long history of demonstrating consistent payments on credit accounts is a good way to show lenders you can responsibly manage additional credit.

The Amount Owed on All Accounts

In general, showing less debt on your credit report makes you a more attractive prospect to lenders. The first thing they consider when examining your amounts owed is your total outstanding debt balance.

Note that FICO says this data point isn’t as significant as other aspects of your amounts owed in calculating your credit score, most likely because it doesn’t tell you much about a borrower’s creditworthiness on its own.

For example, say that John and Mary each have $100,000 of debt. John’s is all credit card debt with a 15% interest rate, but Mary’s is the remaining third of a $300,000 mortgage liability.

All else being equal, lenders would prefer to lend to Mary, despite her and John owing the same amounts.

The Amount Owed on Different Types of Accounts

In addition to considering your total outstanding debt balances, lenders will also monitor how much you owe on groups of credit accounts, like credit cards or installment loans.

Not all types of debt are equally burdensome to the borrower so it gives lenders a more accurate understanding of your debt situation. Plus, they might not want to give you too much of one kind of debt.

For example, say apply for a car loan, but you already have a $5,000 debt. Your lender might approve you if that debt is a credit card with a $30 minimum monthly payment.

However, that becomes much less likely if the $5,000 was another car loan with a three-year repayment term and $350 installments instead.

The Number of Accounts That Carry a Balance

The more credit accounts you have with an outstanding balance, the riskier you look to a creditor. Again, the data point doesn’t prove anything in isolation, but it suggests something about your habits as a borrower.

In general, people tend to rack up charges on new accounts when they run out of available credit on their other ones. Doing that will make lenders suspect you’re overextended.

For example, say you have five credit cards, each with a credit limit of $2,000. If you only have an existing balance on one of them, it’s clear that you don’t depend too much on your credit.

However, if you maxed out your balances on all five, lenders might think you rely on borrowing too much, making you more likely to miss a payment.

How Much of the Total Credit Line Is Being Used on Credit Cards and Other Revolving Credit Accounts?

The previous considerations have all been isolated data points, and they tend to only provide marginal insight into a borrower’s credit habits. 

Your credit utilization, which is the amount you owe on revolving credit accounts divided by their credit limits, is much more meaningful.

For example, if you owe $250 on a credit card with a $2,500 limit, your credit utilization ratio is 10%. That alone tells you a lot about the borrower’s discipline with credit. Just knowing they have a $250 balance does not.

You’ll often hear you should keep your credit utilization below 30%, but lower is always better. To get the best results, try to keep it between 1% and 10%.

Reporting 0% is better than a much higher ratio, but it probably won’t benefit you as much as a single-digit ratio because lenders might think you’re not using the account.

How Much Is Still Owed on Installment Loan Accounts, Compared With the Original Loan Amounts?

Lastly, lenders will consider the amounts you owe on your installment accounts in light of their original balances. The lower the percentage, the more your credit score will benefit. Think of this as the equivalent of credit utilization for installment debt.

For example, say you take $200,000 in federal student loans. After one year, you owe $190,000, which is 95% of the original principal balance.

If you received a windfall and paid down the student loan debt by $100,000, you’d owe $90,000, which would be only 45% of the original balance. Reducing the percentage that much would significantly boost your credit score.

The post The Amount You Owe appeared first on Credit Strong.

The idea behind credit history is that the longer you use credit, the more information lenders will have to determine your creditworthiness. What’s more, using credit over time could help you establish better credit habits. 

According to FICO, the average credit score is 711. If you’re looking for opportunities to build your credit and maintain a good credit score, here’s how your length of credit history can help.

Length of credit history vs. credit age

According to FICO, the length of your credit history incorporates three elements, including:

• How long your credit accounts have been open.
• How long specific accounts have been open.
• How long it’s been since you’ve used your credit accounts.

In general, the longer you’ve had a credit account open and active, the better it is for your FICO score, especially if you have a positive payment history.

Your credit age is a specific calculation credit scoring companies use to help determine your length of credit history. More specifically, they’ll take an average of how long all of your credit accounts have been open. The higher your credit age, the better it is for your credit score.

How is the length of your credit history calculated?

It’s impossible to say exactly how your credit history impacts your credit score because there are many other factors that come into play. But if you’re hoping to improve your length of credit history, there are a couple of calculations the credit scoring models use you should consider.

The first is the age of your oldest account. You can find this by reviewing your credit report and looking for the oldest account you have. 

The second is your average age of accounts. Let’s say you have three credit cards:

• Card A was opened 15 years ago.
• Card B was opened 5 years ago.
• Card C was opened 4 years ago.

To get the average age of these accounts, you’ll add up the ages of each and divide that figure by the number of cards you have. In this scenario, that average is eight years; (15 years + 5 years + 4 years) = 24 years / 3 cards = 8 years average age. 

Now, if you were to open a fourth credit card, which would have an age of zero years, your average age of accounts would drop to six years; 24 years / 4 cards = 6 years average age

It is important to remember that your length of credit history also considers how long specific accounts have been open and how long it’s been since your credit accounts have been used. Unfortunately, FICO doesn’t publicly provide the calculation for these factors and how they impact your credit score.

How does length of credit history affect your FICO score?

Your length of credit history makes up 15% of your FICO score. That may not seem like a lot, but it can still have a significant impact on whether or not you qualify for a loan.

This is particularly true for people who are new to credit. If you have a thin credit file, lenders have less information they can use to determine how well you manage your credit accounts and the likelihood that you’ll default.

That said, a low average age of accounts can also make it difficult to get access to credit, even if you’ve been using credit for years.

That’s because a low average age of accounts indicates that you apply for credit regularly, which could signal that you’re having trouble managing your money without the help of credit. Also, the more credit accounts you have open, the more monthly payments you have. Spreading your budget thin could make it more challenging to keep up with payments on a new credit account.

How to improve your credit history

In general, the best way to improve your length of credit history is to be patient. As you manage your credit accounts responsibly over time, your credit history will improve naturally. However, there are some other specific steps you can take to be more effective in your efforts.

Don’t Cancel Your Credit Cards

Resist the urge to cancel old credit cards, even if you no longer use them. The longer the account stays open, the better it will be for your FICO score. 

Of course, there may be some exceptions to this piece of advice. For example, if you’ve had significant trouble with overspending, the benefits of keeping the account open may not outweigh the costs of credit card debt. 

You may also wonder if holding onto an account with an annual fee or a security deposit is worth it. Before you close the account, consider asking if you can downgrade it to a card with no annual fee, so you can keep the account open and fee-free. The same goes for secured credit cards — see if there’s any way you can have your deposit returned without closing it.

If there are no solutions, however, closing the account to avoid an annual charge or to get your security deposit back may be the better choice.

Make sure your accounts stay active

Keeping your credit accounts active isn’t just important for your FICO score. It also keeps your creditors from closing your accounts for inactivity. 

One way to keep your accounts active is to use them regularly. But if you have an old credit card that doesn’t offer as many benefits or rewards as a new one, consider using the card for a single recurring charge — say, a streaming service or your phone bill — and set up automatic payments, so you don’t have to remember to pay the bill manually every month.

Start building your credit history now

The sooner you start building your credit history, the better it will be for your FICO score in the long run. If you’re a college student, you may consider opening a student credit card and using it for everyday expenses, then paying it on time and in full every month to build good credit and avoid interest charges. 

If you’re not a college student, a secured credit card can provide the same benefits, though you’ll need to make an upfront security deposit to get approved — the minimum is often $200 to $300, and the deposit will be equal to your credit limit. Just be sure to avoid a high credit utilization. 

A non-credit card alternative, which can be good for students and non-students alike, is a credit builder loan. This is a type of installment loan designed specifically to help people with limited or bad credit histories to build their credit. 

Unlike a traditional loan, though, when you apply, the lender holds onto the money until you’ve made your final payment, sometimes with interest. Each payment goes toward paying for the loan and its interest charges and will help improve your FICO score. 

Things that could hurt your length of credit history

While you’re working on building your credit history, there are a couple of things to watch out for that can hinder your progress.

Opening multiple credit cards

It may be tempting to open several credit cards to get sign-up bonuses and various perks. But with each new account, your average age of accounts will go down. 

This may not make a huge difference if you’ve been using credit for several years. But if you’re brand new to credit, you may be better off sticking to one or two accounts while you establish a positive history.

Closing credit cards unnecessarily

In some cases, closing a credit account occurs naturally. Once you’ve paid off your auto loan or student loans, for instance, the lender will report to the credit bureaus that you’ve satisfied the initial agreement and close the account.

But when it comes to credit cards, you can generally keep the account open as long as you want. Of course, there are some potential reasons for closing an account despite the credit benefits of keeping it open, but try to avoid closing credit card accounts that aren’t harming you in other ways — and take steps to keep them active.

Considerations for Getting a Credit Builder Loan

There is one potential pitfall if you’re considering getting a credit builder loan. 

If the loan that you get has too short of a term, it could hurt your length of credit history. For example, only getting a 12-month credit builder account could hurt your credit score by lowering your average credit account length. 

Most credit builder loans have terms of just 12 to 24 months.

A Credit Strong credit builder loan gives you the option to obtain an account that can build up to 120 months of payment history, 10 times the length of credit history of a ‘typical’ credit builder loan. The long repayment period gives you a great tool to improve your length of credit history. 

No other credit builder loan on the market offers this long of a repayment term timeline.

Best of all, Credit Strong accounts have no prepayment penalty or early withdrawal fees, so you can cancel the account at any time for free if your personal financial circumstances change unexpectedly. The lowest plan starts at just $15 per month, so it’s affordable for anyone who wants to build their credit.

The bottom line

Your length of credit history isn’t the most important factor in your FICO score, but it can have a significant impact on your ability to obtain credit when you need it. As you work to build good credit overall, make sure you’re working to establish a robust length of history.

Steps include starting as soon as possible, keeping credit accounts open and active and avoiding opening multiple accounts, especially in a short period of time.

And remember, while your length of credit history is important, your payment history and credit utilization are even more influential, so make sure you’re focusing on those as well in your efforts.

The post Length of Credit History appeared first on Credit Strong.

How Do New Credit Accounts Affect Your Score?

When you apply for new credit, the lender will usually initiate a credit check. That means they’ll pull your credit report from a credit bureau and use it to calculate your credit score.

Each credit check adds a hard inquiry to your credit report. They’ll be visible to future lenders for two years before aging off, though FICO only considers inquiries from the previous twelve months for credit scoring purposes.

One or two hard inquiries on your credit report might cost you a few points, but your score should bounce back quickly. Any more than that is a warning sign to lenders and could affect your credit score more significantly.

Once you receive approval from a lender, new credit accounts continue to affect your score in other ways. 

First, they can impact your Credit Mix, which is worth 10% of your FICO Score. It accounts for the lender preference for borrowers who have demonstrated responsibility with both installment and revolving debt.

Installment debt, like a student loan or car loan, begins by giving the borrower a lump sum of cash. They then make a recurring monthly payment over the life of the loan to cover the principal and interest.

Revolving debt, like a credit card or line of credit, gives borrowers a renewable credit line they can draw on, pay back, and reuse. If your new credit account diversifies your mix among the two types, it can benefit your credit score.

New credit accounts also affect your Length of Credit History, which makes up 15% of your FICO Score. The higher the age of your accounts, the better. That goes for your oldest and newest, as well as your overall average.

Taking on credit lowers your average and resets the age of your newest account, which can cost you points (unless it’s your first credit account).

Finally, and most importantly, new credit accounts affect your Amounts Owed, which are worth 30% of your FICO Score. Generally, new installment accounts cost you points, while new revolving ones can go either way, depending on how you use them.

That’s because installment debt inherently increases your total amounts owed, and more debt means less room for other debt.

You also lose points when installment loans have a high percentage of their original balance remaining, which they all do when they’re new.

New revolving accounts don’t have these issues. They can actually benefit the amounts owed aspect of your score if they lower your credit utilization ratio, which is your amounts owed divided by your credit limit.

For example, if you take out a new credit card and make no purchases, it will increase your limit without increasing your amounts owed, which will lower your credit utilization and add points to your score.

Of course, if you take out a new credit card and immediately max it out, it will raise your credit utilization and cost you points.

FICO’s research shows that opening several credit accounts in a short period of time represents greater risk—especially for people who do not have a long credit history. In this category a FICO® Score takes into account:

• How many new accounts have been opened.
• How long it has been since a new account was opened.
• How many recent requests for credit have been made, as indicated by inquiries to the consumer reporting agencies.
• Length of time since inquiries from credit applications were made by lenders.
• Whether there is a good recent credit history, following any past payment problems.

Looking for an auto, mortgage or student loan may cause multiple lenders to request your credit report, even though you are only looking for one loan. In general, FICO® Scores compensate for this shopping behavior in the following ways:

• FICO® Scores ignore auto, mortgage, and student loan inquiries made in the 30 days prior to scoring. So, consumers who apply for a loan within 30 days, the inquiries won’t affect the score while rate shopping.
• After 30 days, FICO® Scores typically count inquiries of the same type (i.e., auto, mortgage or student loan) that fall within a typical shopping period as just one inquiry when determining your score.

When Should You Apply for New Credit?

If you don’t have any credit accounts yet, you should generally apply for new credit as soon as possible to start building your credit history (assuming you’ve reached financial stability).

If you already have one or more credit accounts, when you should apply for new credit depends primarily on when you last did so and what kind of account you want.

Remember, you should try to avoid accumulating too many hard inquiries on your credit report. You probably shouldn’t apply for another credit account in March if you already did so three times in January.

A good rule of thumb is to wait six months between applications so that your inquiries have time to age off your credit report. That said, depending on what credit account you want, it might make sense to submit multiple applications at once.

If you’re looking for an installment loan, lenders will generally treat all your applications as one if you do them in a short enough window. 

Lenders expect people to go through some amount of rate shopping when looking for a mortgage or personal loan to keep their interest charges as low as possible.

The allowable window depends on the scoring method and can range anywhere from 14 days to 45 days. To be safe, try to keep your applications within a 14-day window.

Note that if you apply to separate types of accounts within the same window, such as a car loan and a personal loan, these will count as separate inquiries.

Unfortunately, none of that applies to revolving credit accounts. While you usually shop around for multiple loans and only end up taking one to fund your planned purchase, credit cards are typically more for regular everyday purchases.

Lenders won’t see your application for a second credit card at another credit card company as reasonable because there’s no need for you to limit yourself to just one. Shopping for the best interest rate, cheapest fee, or highest cash rewards is smart, but the credit system dings you for every credit card hard inquiry.

If you’re going to apply for a new credit card account, you’ll have to do so sparingly to avoid damage to your credit. Try to stick to the one application per six months rule, at most.

The post New Credit appeared first on Credit Strong.

What Are the Different Types of Credit?

There are three types of credit that make up your credit mix. Let’s take a closer look at each one. 

Revolving Accounts

Revolving credit is very common and comes with a ‘credit limit,’ or the maximum amount of credit you’re allowed to use. It is called ‘revolving’ because you can use it repeatedly by making a charge and then paying off your balance. Minimum payments each month keep the account in good standing. 

Outside of home equity lines of credit (HELOCs), the most common types of revolving credit are credit cards. Whether it’s a rewards credit card, student credit card, travel credit card, or business credit card all are considered revolving accounts.

Be careful— any credit card balance carried over each month is subject to an interest rate determined by your card agreement. Rates for balances may be fixed, or they may fluctuate based on the market.

Installment Accounts

Mortgages, auto loans, personal loans, business term loans, and student loans are a few of the many types of installment credit available. 

Installment loans provide a lump sum of money that is repaid with a fixed interest rate. Monthly payments are made in a predetermined amount for the entire loan term. You can usually pay installment loans faster than the agreed-upon term (though be sure to check if there are any pre-payment penalties for doing so!) but cannot extend the term or reduce your payment.  

Open Credit

These accounts have to be paid in full each month. There’s no repaying over time like revolving credit. 

You’re probably familiar with open credit through your utilities where you pay the entire balance of the account based on how much water, electricity, or gas was used. It can also be in the form of debt collections accounts where the full balance is due by a set date. 

FICO® Scores consider the mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open a credit account you don’t intend to use. In this category a FICO® Score takes into account:

• What kinds of credit accounts are on the credit report? Whether there is experience with both revolving (credit cards) and installment (fixed loan amount and payment) accounts, or has the credit experience been limited to only one type?
• How many accounts of each type exist? A FICO® Score also looks at the total number of accounts established. For different credit profiles, how many is too many will vary depending on the overall credit picture.

Why is my FICO or Vantage credit score different from each of the three major credit bureaus?

Each of the three major credit bureaus obtains data independently. A financial institution or non-bank lender that reports credit may only report credit to one or two of the bureaus, so the information each bureau uses to calculate your credit score may vary.

Credit Strong reports your loan to all three major bureaus.

Federal law allows you to request your credit report free of charge from each of the three major bureaus annually. Note that you may receive only your credit report from each bureau and not a credit score. You can request your annual credit reports at www.annualcreditreport.com*.

Why Having a Variety of Credit Types is Important

Once you get your credit report you’ll need to know what components are affecting your score. To understand how FICO scores work, you should know FICO credit scores consist of five factors: 

1. Payment History: 35%
2. Age of Credit History: 15%
3. Credit Utilization— the amount you owe: 30%
4. Credit Mix: 10%
5. New Credit: 10%

Other credit reporting agencies use the same factors at varying percentages to assess borrower credit. But if your credit mix is only 10% of your FICO credit score, then why is it important? 

Having a variety of credit types proves to lenders that you’re a responsible borrower capable of managing multiple types of account payments, due dates, and payment systems. While it’s only a small part of your overall score, every little bit helps. 

Even if you have a great credit mix, your score can be thrown off by a bad payment history or a high credit utilization ratio. 

It’s a good idea to pay down any credit card debt or do a balance transfer to get a lower interest rate. You can improve your credit history and credit mix by getting a credit builder installment loan. 

A credit builder loan is a secured loan that can show lenders a consistent payment history and introduce installment credit to your credit mix. It works similarly to a secured credit card. 

When you make the final payment on a credit builder loan, the bank or credit union releases the cash you used to secure the loan. There are no annual fees for these loans and it’s a great way to build and diversify your consumer credit. 

*Please be advised that by clicking the link above you will leave Credit Strong’s website. The link is provided only as a courtesy. Credit Strong does not endorse or control the content of third party websites.

The post Types of Credit in Use appeared first on Credit Strong.