Minnesota is known for its lakes, dedication to the sport of hockey, and love of hotdish – but its residents’ financial responsibility is even more notable. For the eighth consecutive year, Minnesota residents held the highest average FICO credit score at 731 according to The Week. Following closely behind are South Dakota, Vermont, New Hampshire and Massachusetts, creating a strong trend of Midwest and Northeastern states reporting higher than average credit scores. There isn’t one specific reason for this trend, rather it is a combination of the differences in economic environments and spending habits between the North and South. Aside from consistent financial responsibility, Midwest states may have higher scores because of what they aren’t doing. Southern residents tend to have a higher credit balance, lowering their credit score in comparison. Regional trends aside, the United States average is up 14 points from 2010. Looking to join the movement of a more stable financial profile? You may be surprised what factors hold the most weight when calculating your credit score.
There are seven main factors that affect your credit score:
- Payment history for loans and credit cards
- Total debt
- Credit utilization rate
- Number of recently opened credit accounts
- Type, number and age of credit accounts
- Number of inquiries for your credit report
- Public records
Diving deeper into each of these factors will give you a better understanding of how your financial decisions are affecting your credit score.
Your loan and credit card payment history are the most influential factors when calculating a FICO credit score. This summary will also include the severity and frequency of late payments.
Total Debt and Credit Utilization Rate
Following your payment history, your total raw debt holds the next heaviest weight. This amount is also used to determine your credit utilization rate, calculated by dividing your total debt by total available credit. This percentage shows how well you manage money by comparing the amount of money you are spending versus saving.
The length of your credit history, number of new credit accounts and credit mix (the types of accounts you hold) are all considered moderately influential to your overall credit score.
Credit Report Inquiries
The number of inquiries for your credit report affects your credit score, but only “hard” inquiries. These are inquiries made by a potential credit lender when making their lending decision. “Soft” inquiries are when you check your score, or a lender or credit card company checks your score to preapprove you for an offer, but these do not affect your score.
Public records, like bankruptcy, lawsuits, or judgements, round out the factors used to calculate your FICO credit score. Civil judgements are no longer reported on credit reports, but an active judgement may affect your ability to open credit, buy a car or close on a home. When a debt is discharged in a bankruptcy, it does not clear the judgement. This comes as a surprise to many bankruptcy clients, and it is often not realized until they are applying for credit. Hoglund Law offers judgement removal services to retained bankruptcy clients to ensure their fresh financial start is complete.
Don’t let the lengthy list of credit score-determining factors intimidate you. By paying your bills on time, paying off debts, keeping credit card balances low and only opening new credit accounts if needed, you can make steady improvements toward your credit score. Alongside these responsible financial decisions, you should also thoroughly evaluate your credit reports. According to a 2012 study by the Federal Trade Commission, almost 25% of U.S. consumers have found errors on their credit reports that may affect their credit score. If you do find inaccuracies, contact the credit bureau that created your report. Taking your credit score seriously will open up your financial opportunities.
If you feel your financial profile has reached a point where you need help saving it, contact Hoglund Law. Our experienced attorneys will offer a free consultation and answer your questions.