If you apply for credit, whether it’s a credit card or a home loan, your credit score will no doubt be the determining factor in whether or not you are granted credit. The higher the credit limit you apply for, the more scrutiny your credit will undergo. This is especially true of a mortgage since hundreds of thousands of dollars may be involved. Your credit score, which can range from a low or very poor credit of 300 to a high or perfect credit of 850, will determine not only if you will be granted credit but also how much credit you will be allowed to have. Five factors typically affect your credit score:

Payment History

If you’ve never missed a payment on anything, you are probably a pretty safe person to lend to. If, however, you have missed payments on credit cards, auto loans, student loans or other kind of indebtedness, a number of things will further affect your credit score either positively or negatively.

1. How long has it been since you’ve missed a payment? If a single occurrence happened a long time ago and there has been nothing since, there should be very little impact on your credit score. On the other hand, if you have recently missed a payment, there will certainly be a negative impact on your credit score.

2. How many payments have you missed? One missed payment in five years probably won’t matter very much. Four or five missed payments over the same time will matter in a negative way. Continuously missing payments represents a trend that creditors expect will continue.

3. What kind of payment did you miss? There is a difference between a $300 missed payment on an auto loan and a $10 missed payment on a credit card. If you’ve ever had an account go to collection, your score will be greatly penalized. The biggest black mark of all is bankruptcy which may preclude you from getting credit for a minimum of two years.

How Much You Owe

The amount you owe as a percentage of the total amount available for you to use (exclusive of a mortgage or home equity loan) is also a factor in determining your credit score. As an example, if you have three credit cards that each have a $3000 credit limit for a total of $9000, and you owe a combined total of $8500 on the three credit cards, you have used up 94.5% of your available credit. This will definitely lower your credit score and affect your ability to borrow since lenders do not want to see more than 50% of your available credit being used.

Length of Time You’ve Had Credit

If you are young and fresh out of school with a very short credit history, your credit score may be very low. The longer you have had credit, the better it is to determine patterns of behavior. Therefore, the longer you use credit without missing payments, the higher your credit score. Lenders like to see an established credit history of at least three years and preferably longer. It will probably take this long to establish a good or a bad credit score. Some lenders will use alternative credit such as rent payments and utility bills that do not appear on credit reports to establish credit history, but you cannot depend on this since most people will have need for credit many times during their lives.

Time of Last Credit Application

If you have applied for credit in the last three months, and even worse mutiple lines of credit, it typically indicates a need for money. Credit inquiries by multiple banks, lenders or other creditors can quickly lower your credit score. Avoid multiple inquiries unless you are seriously seeking a loan or other credit.

Types of Credit

There are two types of credit — revolving like credit cards, and installment like a car loan or a mortgage. In the eyes of lenders or creditors, they have a hierarchy. Installment loans are of more importance than revolving credit. Mortgage loans have greater value than auto loans. With revolving credit, bank credit cards like Visa and Mastercard have greater importance than store credit cards like Sears and Macy’s. A blend of these types of credit is optimal to improving your credit score.

Since your credit score will play an important role in your entire life, it is important to understand the above factors and make an effort to maintain good credit. A bad or less than acceptable credit score, will cost you a great deal in the long run. It can affect your work and your wallet either positively or negatively. It is not something to take for granted.