California (OPENPRESS) March 22, 2012 - Your credit scores are basically a snapshot of your credit worthiness - if you pay your bills on time and according to terms, you'll have a good snapshot. If you don't, well, let's just say your snapshot is full of ugly.
When you are applying for any type of credit, the lender will look to one of the three credit reporting agencies: TransUnion, Experian and Equifax. These bureaus each formulate your credit score, and it may vary a bit from bureau to bureau, since they each have their own calculation formulas.
Of course you know that it is in your best interest to achieve and keep the best possible credit score - having that score means the best loans at the best rates and terms. But understanding what can negatively affect your credit score is something many people don't know.
Thirty-five percent of your credit score is payment history, so if you are late or miss paying your bills altogether, you've got trouble. Your credit report will show how long your accounts are past due and the number of past due items on file, as well as any liens, foreclosures and bankruptcies.
Another negative appears when you use more than 80 percent of your available credit. Thirty percent of your score is amounts owed, and you shouldn't use more than 20 percent. Higher than that shows you are in financial distress and are a serious credit risk.
A short credit history is also a problem - 15 percent of your credit score is length of history. You'll also have issues if you have too many requests for new lines of credit. New credit requests, including the number of recently opened accounts and recent credit inquiries, can pull your score down. A lot of attempts at gaining additional credit can make you look like you're in over your head financially.
Likewise, if you only have only one type of credit can have a negative effect. Ten percent of your score is based on the types of credit used - a variety of types improves your score because it shows that you are an experienced borrower and can manage your finances wisely.
If you've got a bad credit score and want to improve it, remember: it will take time. Get your credit reports from all three bureaus and check them over thoroughly to be sure there are no errors. Then, simply pay your bills on time, reduce your debt, and pay off debt instead of moving it around. Keep your credit card balances low, and apply for new credit only if it is necessary.