Credit scores have become very important to consumers for a variety of different things. Your credit score determines whether you will be, approved, declined, required to place a large down payment, or have to obtain good or very unfavorable terms for not only mortgages, home loans and cars, but for a variety of other things as well. Your credit and credit scores can now play a major role in determining what premiums you pay for homeowners and auto insurance, whether or not a utility company (phone service, gas service, electric, etc...) will require you to place a deposit down to get service turned on (and how much of a deposit), your rate and determine whether you will be approved or declined on personal loans and credit cards, whether or not you are able to rent an apartment or home, amongst many other things. Many employers now look at a potential employees credit report before hiring them. Therefore, you can see how credit and credit scores can play an important role in your life and with bad credit it can force you to pay higher interest rates, higher payments and higher premiums on numerous different items. There are many factors that help contribute to determine a persons credit score that you will learn about here.
Whether you pay all your bills on time is probably one of the more important aspects that determines your credit scores. Most companies that extend credits to you report to the major credit repositories on a regular basis. Any late payments history will have a negative effect on the credit scores. The more recent the reported "lates", the higher the impact on scores. Lender banks consider mortgage payment "lates" much more severe than credit card late payments, and punish homeowners with mortgage "lates" accordingly with higher interest rates and/or lower loan amounts.
Your credit report will list any collection or charged-off accounts that you may have. Having these kind of accounts reporting will definitely have an adverse affect on your credit score. A word of caution though. Paying off collection accounts, especially older ones may cause your credit score to go down, at least in the very short term. If you are applying for a mortgage please consult with a mortgage professional such as myself before paying old collection accounts.
The number of recent inquires has an affect on your score as well. Although it does not carry as much leverage as many other factors in determining your credit score you should still avoid having your credit checked unless nessecary.
The companies that determine your score do not fully disclose all the inner workings of what goes into your score. Granted they tell you what percentage of types accredit help or hurt you but they dont get into the nuts and bolts of it all. There are however some basic rules of thumb. One rule of thumb is to have your balance be lower then half the highest available balance. So if your highest available balance on a visa card is say 10k. Make sure your actual balance is below 5k.
There is also a seasoning factor. Someone who has maintained good credit standings for a long period of time will generally have a higher score then someone who just established their credit.
The number of open accounts you have influences your credit score. Less than 3 or more than 5 can decrease your score.
If you have had a bankruptcy, you can expect it to stay on your credit report for up to 7 full years. Although it will still show, there are ways to still increase your credit score after a bankruptcy.