5 Factors that Make up Credit Scores

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What makes up a credit score? Which category is weighted the most? And how do I improve my score?

Credit scores range from 300 to 850, higher the score the better.   Credit enables you to credit cards, loans, an can even affect your ability to get hired.   It shows whether you are fiscally responsible and is now also used to gauge how responsible you are in general.   There are 3 major credit agencies — Equifax, Experian, and Transunion.

Payment History- 35%

Do you pay back the lenders who gave you credit or money on time?   Making your payments on time is the most important factor that affects your credit score.   Most often than not credit card companies have a grace period and if you know you’re going to be a couple days late, it’s important to call and let them know ahead of time.   I can’t guarantee that all companies will give you that leeway but most of them will if you let them know in advance.   Typically the late payment cycle looks like this: after 30 days a company will report you to the credit bureau, and depending on the lender, after 60-180 days, your account will be “charged off” and sold to collections which will adversely affect your score.

Amounts Owed — 30%

The second-most important component of your credit score is how much you owe. If you have a line of credit, it’s better to use it but not all of it.   What lenders are looking for is for you to use the credit available but in a fiscally responsible manner by making timely payments to pay down your debt.   To keep your total DIT low, you need to spend money wisely and be careful what you charge on your credit card.   This includes paying back multiple types of credit such as mortgage, auto loans, credit cards, installment loans, etc.

Length of Credit History — 15%

How long you’ve maintained your credit and made payments also plays a part in your credit score.   How old is your oldest account and are you still using that line of credit?   The earlier you start using credit and paying back your creditors on a consistent basis, the better it will be in the long run towards your credit score.   Think of it as a trusting long term relationship — the longer you’ve known someone the more likely you’re willing to give them money if they need it.   This doesn’t mean a short credit history is bad, as long as you are making your payments on time and keep your balances low.   Remember its never too late to start building credit history.

New Credit 10%

Applying for new credit and the last time you opened a new account will be considered in your FICO score.   Basically, if you’ve opened new accounts recently the FICO score will take this as a greater credit risk because it will assume that you are having monetary problems and thus, have turned to credit as a means to make purchases as opposed to free cash.   If you received a great offer on credit, just make sure that you don’t overextend yourself financially but be responsible with purchases and payments.

Types of Credit in Use — 10%

The last thing your credit score is made up of is the types of credit you have as I mentioned before.   Are you using just credit cards, do you have a mortgage, auto loan, etc. Along with the types of credit, the total number of accounts are considered as well.   I wouldn’t worry too much about this part since it’s a small percentage of your total score.   Remember, the idea here is to be fiscally responsible with the credit that you have and make timely payments.   Don’t feel the need to open various types of accounts just to increase your credit score.

Some things to note, which do not affect your score:

  • Age
  • Marital status
  • Salary
  • Receipt of public assistance
  • Occupation
  • Employment history
  • Rental agreements
  • Participation in a credit counseling program

You can also check out an article on how to improve your credit score that was published recently.   It goes over great ways to improve your score with a few simple steps.

If you have any further questions, feel free to ask me for help!



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