CREDIT SCORES

Banks and lenders want to loan money to people who have the ability to pay back the debt. That’s why they will look closely at your credit score or FICO score during the application process. The score is a number, generally between 300 and 850, that indicates how much risk is involved in lending you the money. It is determined using a statistical model and is based on your credit history. The higher your FICO score, the better.

So now you may be wondering, what causes someone to earn a low FICO number? Here are five things that can adversely affect your rating.

1. Late Payments – Failure to pay your bills on time can drag down your score. This includes credit cards, utilities, school loans and other debts. The later the payment the more damaging the effect. It is also important to note that late payments stay on your credit history for a period of seven years.

2. Maxed Out – If you are carrying a lot of debt or are close to your credit limit on several accounts, you could be seen as high risk. In other words, the lender sees you as someone who is spread too thin and may not be able to make future payments.

3. No Track Record – Lenders also look at the length of your credit history. If you’ve only had accounts open for a short period of time that could hurt you. Lenders want customers with a proven track record, where history shows they are able to pay back debts over a significant period of time.

4. Not Diversified – One credit card, also called a revolving account, used consistently and paid on time may not be enough for some lenders. A good mix of credit, like car loans, other mortgages, school loans in addition to revolving credit is viewed more favorably.

5.Too Much? – If you’ve opened several new accounts recently, it may raise a red flag. Your score will factor in the number of new accounts versus more established ones.