Ever wonder all the basics of what is used for your credit score? Well, here it is, in black and white… and a little grey.
To create a credit score, some of the information on your credit report is fed into a mathematical formula. The critical information and their importance are as follows:
Account Types – This includes mortgages, car loans, and credit cards. The importance of your types of accounts is about 10% of the overall score.
Number of Recent New Accounts – Just how many new accounts do you have in proportion to the total? This is another 10% of your total score.
Payment Histories – Pretty basic, either you pay on time or not. Although simple, this piece of your credit report is the largest category at 35%.
Account Balances – Exactly how much you owe on all debts as a snapshot in time. This is the second highest at 30%.
Length of Credit History – How long you have had an active credit report impacts this rating and comprises the last 15% of the total.
Essentially, in order to get a good score, you must have met the following conditions:
Account Types – a large variety of account types showing your ability to diversify your credit.
Number of Recent New Accounts – too many newer accounts sends up a red flag. Ideally you want to have a large volume of older accounts.
Payment Histories – this is certainly the main factor in a credit score. Are you a risk? Do you always pay on time? Have you ever had problems with creditors? The more consistent you are in following through on your credit obligations, the higher your score.
Account Balances – is a factor of both how much you owe and what percent that is of your total available credit. Owing a low percentage of your totally borrowing amount and avoiding maxing out your available credit receives the highest score.
Length of Credit History – while there isn’t much you can do here but wait, certainly the longer your credit history, especially if it has been responsible, the higher the score.
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