Can you have bad credit even with a good income?

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High income is advantageous and certainly matters when applying for a loan, but your credit score is a bit more complicated.

See: 5 fastest ways to boost your credit score
Explore: This Credit Score Mistake Could Cost Americans Millions

The major credit bureaus do not collect any information about your income to determine your credit score. Instead, they look at how much credit you have, how much credit you’re using, your repayment history, pending debt collections, and public record details like bankruptcy or foreclosure. Lenders look at this information to determine how well you are managing your credit obligations. The higher the score, the more you have access to more favorable loan conditions.

“The purpose of credit scores is to help assess the risk that a person will not pay a debt as agreed – regardless of income,” Rod Griffin, director of public education for Experian, reported. OppLoans. “Understanding the components of your credit report is critical because a strong credit history increases your access to the financial services you need,” he added.

According to OppLoans, FICO does not reveal the exact algorithm for determining a person’s credit score, but these are the factors that determine a person’s credit score:

  • Payment history (35%): This is the most important element in determining your credit score, and also the easiest to fix by paying your bills on time each month.
  • Amounts due (30%): This is the sum of all your balances divided by the sum of your cards’ credit, also known as the credit utilization rate. The credit bureaus like to see a credit utilization rate below 30%. If it’s higher, the three major credit bureaus see that as a sign that you can’t afford to pay off the balance.
  • Length of credit history (15%): The longer your accounts have been open, the better. Keep your oldest accounts open to improve the length of your credit history.
  • Type of credit (10%): It is better to have a variety of types of credit, such as a mortgage, student loan and credit card, rather than just one type of credit.
  • New credit applications (10%): When you open or apply for new credit, your credit score takes a temporary hit.

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About the Author

Josephine Nesbit is a freelance writer specializing in real estate and personal finance. She grew up in New England but is now based in Ohio where she attended Ohio State University and lives with her two toddlers and her fiancé. His work has appeared in print and online publications such as Fox Business and Scotsman Guide.

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