What Does Your Credit Score Consist Of

By | December 18, 2012

Credit scores can be confusing to dissect. For years it was always a mystery how the credit reporting agencies came up with your score. This number is so important that it dictates how much you’ll pay for a car loan or a home loan. Well there is no mystery anymore. We now know what elements comprise a credit score. Here are the factors that determine your credit score.

Payment History [35%]

Your payment history is the most important factor in determining your credit score. When a bank loans you money they want to know the likelihood of you paying it back in time and payment history is the best indicator of that. It is common to find errors on your report so be sure to fix payment history errors to give your score a boost.

Amount Owed [30%]

If you owe too much money at the moment, nobody is going to want to lend you more money. This is a very important factor as it pertains to your credit worthiness.

Length Of Credit [15%]

If you have been using your credit for a very long time then you’re going to get some bonus points. Creditors are wary of loaning money to people who are new to the credit game. Sometimes, a long and blemished history is better than an empty one. This is why it’s important to establish a credit account early in your life and keep that account open.

New Credit [10%]

If you have recently opened up several new lines of credit you can expect your credit score to take a big hit. The reason is that it will appear that you are desperate for money. It’s not a good idea for creditors to loan money to someone who is desperate to raise cash. If you want to compare auto loan quotes you can do so without it hurting your score though. The reason is because it will appear that you are rate shopping, rather than trying to open new credit accounts everywhere.

Types Of Credit [10%]

There’s different types of credit. Some are revolving lines of credit and others are not. Revolving credit means that once you pay back the debt you are allowed to borrow more, like a credit card. The other type of credit is the one where you pay it off and the credit line is closed, like an auto loan. Having a good mix of these in your credit report is important, as it shows you can handle both types of debts.

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