What Affects Your Credit Score?

Experian tells us that credit scores range from 300-850. A credit score of 700 or above is generally considered good. A score of 800 or above is considered excellent. Most consumers have credit scores that fall between 600 and 750. Higher scores can make creditors more confident that you will repay your future debts as agreed. Thus, a higher score means you pay lower interest! If your score is lower, you will be charged more interest because the bank sees you as a bigger risk.

Have you ever wondered what affects your credit score? You might be surprised. Here are Experian’s 5 key areas:

  • Payment History: Making on-time payments on your credit accounts can help your scores. But missing payments, having an account sent to collections or filing bankruptcy could hurt your scores.
  • Credit Usage: How many of your accounts have balances, how much you owe and the portion of your credit limit that you’re using on revolving accounts (credit cards) all come into play.
  • Length of Credit History: This category includes the average age of all your credit accounts, along with the age of your oldest and newest accounts.
  • Types of Accounts: Also called “credit mix”, this considers whether you are managing both installment loans (Car, personal and/or mortgage) and revolving accounts (credit cards and home equity lines of credit). Showing that you can manage both types of accounts responsibly generally helps your scores.
  • Recent Activity: This considers whether you’ve recently applied for or opened new accounts.

A personal bankruptcy will kill a credit score. Medical bills continue to be the number one cause of personal bankruptcies. Healthcare is expensive and not everyone has health insurance. So, if you have a stack of medical bills and you want to avoid having them sent to collections, pay something on each bill every month. If all you have is $5, send it in regularly without fail. This is not a fool-proof strategy however it is my understanding that they are less likely to send you to collections if you communicate with them and make a regular payment. Here’s what not to do. Do NOT get a personal loan for medical bills put them on credit cards or add them to your home equity line of credit. Most medical bills do not charge any interest on your balance so why would we want to pay interest if we don’t have to? One final note on medical bills. Pay them last. Pay your regular bills first; your mortgage/rent, car loan, and credit cards. It is my understanding that most lenders look at medical bills differently; meaning, if you are responsible and keep your regular bills paid but you happen to get a medical bill sent to collection, the damage is far less than letting all your regular bills fall behind just to pay a medical bill.