Are we alone in the universe? Is Bigfoot real? How is your credit score determined? These are the great mysteries of our time. And while we can’t help you with the first two, we can shed some light on your credit score. For better or worse, your score plays an important role in the mortgage process. The national average is 704, and the higher your score, the lower your interest rate. While a lower score can keep you from getting approved all together.

Here are the five main factors that go into calculating your credit score, and how to improve it.

1. Payment history. “Set-up auto-payment” has forever changed the credit score. Because the more often you pay your bills on time, the better your credit score will be. On the other hand, pay late or miss a payment, and your credit score could take a significant hit. If your budget allows, setting up auto-payment is an easy, smart way to improve your score over time.

2. Length of credit history. The longer your history of good credit, the better your overall credit score will be. Taking out smaller loans with smaller payments can be an easy way to establish good credit early in life. Because the total dollar amount is low, you should have an easier time getting approved for the loan. And because the payments are small, you’ll have an easier time paying it back.

3. Amounts owed. Carrying over high credit card balances month-to-month can negatively impact your score. Try to keep your credit card balance low, and work to pay off high-balances as soon as possible.

4. New credit. Don’t open a lot of new accounts all at once, especially if you don’t have a long credit history. Even if you have a long credit history, opening new accounts can lower your score. So, if you’re applying for a large loan like a mortgage, it’s better to hold off on opening any new accounts.

5. Types of credit. There are three types of credit accounts: revolving, open, and installment. Revolving credit includes lines of credit, like a credit card, that you can borrow from at any time and pay back over the coming months. Open credit is similar, but you have to pay it back in full each month. Installment credit includes your standard loans, such as student loans, mortgage, or auto loans. Having a mix of credit accounts (and paying them off on time) shows lenders you’re responsible.

For a more detailed analysis of your score and how to improve it, call us to set-up an appointment at (844) 754-6280 or find your local loan officer at LMCU.org.