Behind the Scenes of Your Credit Score

Credit Score

Your credit score shows lenders your financial management and responsibility. It can be a score of 300-850, and you will have three separate scores from each of the three main credit bureaus: Experian, TransUnion and EquiFax. Credit score is made up of five key elements. We hope that by explaining these key factors of your credit, it will enable you to make the best decisions regarding your credit score and financial future.

Payment History-35%

The most critical aspect of your credit score is whether or not you can be trusted to make payments on all of your bills, on-time, every-time. Paying bills late has a negative impact on your score, the opposite is true of paying on time. The later that you pay a bill, the worse the impact it will have on your score. Things like bankruptcies and foreclosures impact this section of your score which has the largest impact to your credit. Even paying one bill just a couple bills late can have a negative impact to your credit score, so make sure bills are paid on time.

Amounts Owed-30%

The second-most weighted factor of your score is how much money you are in debt. This looks at several different aspects. How much of your total available credit you have used. How much you owe on specific types of accounts. How much you owe in total. Less is better in this case, however having a little debt allows you to show that you can make payments on time.

Length of Credit History-15%

This is the section of your credit score that considers how long you have actually been utilizing credit. It looks at the age of your oldest account and also the average age of all your accounts combined. The longer the history the better as long as that length of time doesn’t contain negative factors. Such as a late payment. Young credit however is not horrible if it is very clean and free of derogatory marks.

New Credit-10%

This looks at how many new accounts you carry. Lenders often assume that someone who opens several new accounts could be a higher credit risk as people tend to open more lines of credit when they experience or predict cash-flow problems. If you were to apply for a mortgage, a lender would take a look at all of your existing monthly debt payments. They determine how much of a monthly mortgage payment you could actually afford.

Types of Credit in Use-10%

The last thing that your FICO credit score looks at is to see if you have a mix of different types of credit. This includes things like: credit cards, store accounts, installment loans, and mortgages. It also takes into account the total number of accounts that are in your name.

What all of this means to you is that in order for you to have the best result when you go to apply for a loan, you should take into consideration these key factors. Keep your credit card balances below 15-25% of your available credit in order to have a good utilization ratio. Pay all your bills and accounts on time. Don’t open a lot of accounts close together. You should be checking your credit score around six months prior to making a major purchase like a house or a car. Lastly if you do have problems with your credit score don’t get discouraged. You now know how to have a positive impact on your credit score, so start today!

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