Your credit score is a big factor in determining your interest rate and whether you qualify for a loan. Below are some key factors used in credit scoring models.
Sections in this article cover:
- On-time payment percentage
- Credit card usage
- Average age of open credit lines
- Total accounts
- Hard inquiries
- Derogatory marks
On-time payment percentage
This is the percentage of payments you’ve made on time during your credit history. It’s a factor that often weighs heavily into your creditworthiness. Just one or two late payments could significantly affect your score. If you’ve had trouble keeping up with payments, set up automatic bill pay or create calendar reminders for bill due dates.
Credit card usage
This percentage is calculated by taking your total credit card balances and dividing that number by your total credit card limits. It essentially shows creditors how much of your available credit you use on average. Lower credit card usage is generally better.
Average age of open credit lines
The longer your credit history—and the older your accounts—the better. That is why it can be a good idea to keep older credit cards open and active.
Consumers with more accounts (or more lines of credit) often have higher credit scores because it indicates that more lenders are willing to give them credit. Having a good mix of different types of credit is good for your overall credit health as well. But remember it is a balance, and you should only open accounts you actually need.
When you apply for credit—like a credit card, mortgage or auto loan—a hard credit inquiry appears on your credit report. One hard inquiry will usually have little impact, but multiple inquiries can have a larger impact. A soft inquiry is when you check your rate to see what you qualify for. When you check your rate through LendingClub, this is a soft inquiry that won’t affect your credit score. A hard inquiry that may affect your credit score only appears on your credit report if you receive a loan through LendingClub.
Derogatory marks are negative items on your credit report like collections, tax liens, or bankruptcy. These records can stay on your credit report for 7 to 10 years. If you have one on your credit report, it can show a lender that you may have mismanaged your credit in the past.
If you want to understand how you stack up on these factors, check out Credit Karma’s free credit score overview.