As you’re gaining financial independence, it’s important to start monitoring your credit. Lenders use credit scores, which typically range from 300 to 850, to determine how likely borrowers are to pay back what they owe. Potential employers and landlords often review them to gauge a candidate’s reliability. Those with the highest scores are seen as the most responsible and qualify for the best interest rates. Over the life of a mortgage or car loan, paying less in interest could save you thousands of dollars. Keep the following factors in mind to raise your score so you can reap these benefits.  

Which Factors Determine My Credit Score?

1. Payment History 

Lenders want to see that you can meet your minimum financial obligations every month. As such, payment history has the greatest impact on your credit score. The precise figure varies between credit bureaus because each has a unique formula. Generally, payment history accounts for about 35% of your total score. 

2. Credit Utilization 

Credit utilization is the ratio of debt you owe on revolving accounts to your available credit. For example, if you have a single credit card with a limit of $10,000, and its balance is $2,000, your credit utilization is 20%. Lower credit utilization will contribute to a higher score. This ratio makes up about 30% of your credit score. 

3. Length of Credit History 

The average age across all your accounts has a minor impact—roughly 15%—on your credit score. Therefore, it’s wise to keep your oldest accounts opened, even if you don’t use them. If you’ve recently opened credit accounts, your score will not be totally perfect, but by maintaining older accounts, you will be able to raise your score. 

4. Types of Credit

A broad range of accounts will positively affect your score. For example, a mortgage, a student loan, a car loan, and credit cards are all different types of credit accounts. Lenders want to see that you can manage both installment loans and revolving accounts.

5. Number of Inquiries 

Every time you apply for a loan, the bank will review your credit history. Known as a hard inquiry, this can drop your score by a few points. In other words, applying for multiple kinds of financing over a relatively short period will hurt your score. Hard inquiries are typically removed from your report after two years.

When you’re ready to apply for a car loan or mortgage, turn to Hawaii County Employees Federal Credit Union. Located in Hilo, this banking institution will help you secure the most affordable financing possible. For more than 80 years, individuals, families, and businesses throughout the Big Island have turned to them for all their banking needs. To review current rates for personal, home, and car loans, visit their website or call (808) 961-5550.