We can go into specifics for hours and I can write article upon article about one thing or another concerning what affects your credit score. Over time, I will do that, one article at a time, as well as develop a step-by-step program to develop the top credit score. In the meantime, it is imperative to understand that a credit score is the result of complex algorithmic formulas determining your credit worthiness, and there is a process by which the scores are evaluated. This is what affects your credit score at its core.
There is something in the financial world called the Three C’s of Credit. I don’t know where it came from but they are universal guidelines for what affects your credit score, determining your credit worthiness, and ultimately whether a creditor will lend you money. The Three C’d of Credit are:
Character: do you have good character (from a financial standpoint)? Have you utilized credit before (do you have a credit card, an auto loan, a mortgage, etc.)? Do you pay your bills on time? How long have you lived at your present address? How long have you been at your present job? The last two are hold-over’s from the days of old. Today young people move more and change jobs more than their parents did. However, it’s still a deciding factor in financial character and something to consider when building or rebuilding your credit.
Collateral (or Capital): something you own of value (called material security) that a lender can secure their credit against to lessen the risk of default. The philosophy is that if you put your house, car, art work, or anything of financial value up for collateral, the lender will be able to collect that if you default on your payments.
Capacity: simply stated, can you repay the debt you are looking to borrow? How long have you been in your current occupation? Is it an occupation that looks likely to continue providing work at your current income level? Do you have the savings, whether in the bank or in a non-retirement investment portfolio to cover the debt if you become unemployed?