By Calvin O’Neal Russell Jr.
Fixing your credit can feel like a puzzle that you lost half of the pieces to. There are a lot of factors that go into play when trying to increase your credit score. Most consumers receive 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 will keep your credit score from increasing.
1. Payment History
I know, I know. You have heard this a million times. But guess what? Some people continue to make late payments despite knowing this. But let me break it down. 1 late payment has the weight of 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.
But 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. For example: If a consumer has a due date of 5/1/2015, pays on 5/12/2015 it WILL NOT decrease their credit score. You will most likely be charged a late fee by the lender though. Now, if a payment is due on 5/1/2015 and a payment isn’t made until 6/3/2015, it will be considered 30 days late and it will show as a 30 day late payment on the credit report.
Unlike payment history, this is one factor many consumers don’t know about. 30% of your credit score is determined by the “amounts owed” better known as “utilization.” Credit card utilization is calculated by dividing the balance by the limit.
For example: If your limit is $1500 and your current balance is $1300, then your utilization is 0.866 or 87%. In order to maintain a high credit score, it is ideal to keep your utilization between 5%-30%. So on an account with a credit limit of $1500, your score would benefit best by keeping the balance 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
15 % of what makes your credit score is determined by your length of credit history. Consumers that have a FICO score of 780 or higher have an average account age of 11 years and the average oldest account was opened 25 years ago! This factor shows how long a consumer can keep an account opened with good payment history and 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.
Be sure to read your full disclosure for your credit cards to find out more about it.
Of course, these are just 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, tax liens, bankruptcies, and more.
Calvin Russell Jr is a Certified FICO Professional and the CEO & Founder of Simply Professional Credit Consultation. SP Credit Consultation has helped hundreds of people increase their credit scores, qualify for homes, cars, and lower interest rates with their personal, Step-By- Step Action Plans. E-mail us at firstname.lastname@example.org learn more.