Credit Score: The Amount You Owe Can Influence It

If you have ever applied for credit in any shape or form, or any find of deferred payment plan, the phrase credit score has probably entered your vocabulary. Credit scored help determine first of all if we obtain credit and second of all the price we will pay for that credit. Credit scores can also influence other areas such as insurance rates and even employment. For these reasons it is best to keep your score high. Several factors influence your credit score. Your payment history, the amount you owe, your credit history length, new credit accounts and an overall mixed picture. In this article we will look closely at how the total amount of money owed can influence your credit score.

Many are under the impression that payment history is the only real factor to their credit score. This is highly untrue. Although keeping a good payment history is highly recommended, it only account for about 35% of your overall credit score. A further 30% is given to the actual amount you owe. The credit agencies that devise these numbers will look at how much you owe and on what types of accounts. For example, one is considered in a much better financial position if they owe 100,000 dollars on a house rather than 100,000 dollars in plain loan debt. Even if the person makes regular payments, owning on a house will give you a higher credit score and a better financial position.

They will also look at the credit account and which ones still have balances. They also look at the total amount of the credit line that has been used. Someone with 7 credit cards that are maxed out may present a higher risk that someone with substantial space left on their cards. If you have car loans they may look at how much you borrowed compared to how much you still owe. If you have paid of a good portion then this will reflect quite favorably on your score.

Maintaining a good credit score is important in today’s world. With the rising costs of housing and cars, fewer and fewer of us are able to afford these with cash. We rely on loans and financing to get the things that we want. A low credit score can make getting this financing very difficult. Maintaining payments is one essential part but keeping tabs on the amount you owe is another. Resist the urge to max out and be mindful of the type of debt you have. It could make a big difference in your financial future.