Credit Reporting Agency Reveals Factors Impacting Credit Scores
This week, Experian released a comparison study that reveals the factors most impacting your credit score. As one of the three major credit reporting agencies, the company is in a position to provide authoritative information about what helps—and hurts—your credit score.
That information is important to all consumers, but especially to those who are working to rebuild credit after bankruptcy.
The study compared the average debt and payment history for consumers with credit scores of 660 or lower to those same factors for consumers with high-end (720 and up) credit.
At first glance, some of the results are surprising. For instance, those with the higher credit scores owed more than twice as much as those with the lower scores. The important distinction, according to Experian, is that the high scorers owed a smaller percentage of their available credit.
The low scorers had an average of $6,661.00 in debt, and were using 27.7% of their available credit. The 720+ scorers, on the other hand, owed an average of $15,015.00.
They had higher credit limits, though, and so were using only 17.8% of their available credit. The closer you are to using all of your available credit, the more negative the impact on your credit score.
This becomes especially clear when you consider the group who falls between those two scores. Those mid-level scorers had an average of $24,795 in debt. Perhaps more significantly, they were using a whopping 48.3% of their available credit. Even with a very low average number of late payments (.13 over the past six months), their credit scores are less than ideal.
The message, then, is clear: if you want to maximize your credit scores, don't use all—or even most—of your credit. Even if your payments are made on time, a high level of credit card debt compared to your available credit can hurt.
The report also showed a difference in the average age of accounts.
The high-scoring group had accounts that had been open, on average, for nine years. For the low-scoring group, the average was less than four years. So, Experian advises, don't close old accounts even if you don't use them often.
Longevity, like restricting the percentage of your credit in use, has a positive affect on your scores. These scores may help you keep your interest rates down, and avoid falling into bankruptcy traps.