HOW IS MY CREDIT SCORE DETERMINED?
Understanding how your credit score is calculated is
very important. Knowing this information will allow you
to practice good credit, thus keeping your score
favorable. Remember, your score is calculated by
analyzing the 'whole' of credit information in your
report and the various factors that make up that whole.
Below are the major common factors that are used in
determining your credit score.
There are also many smaller variables that influence the
calculation of your credit score. If you have any
Age is not a factor in determining your credit score at
all. Learn more about
how age impacts your credit and chances of loan approval.
The first thing lenders want to know is whether you
have paid your past accounts on time, in full. Fair
Isaacs, the company that has created the model for
calculating credit scores, states that your payment
history makes up about 35% of your credit score. One or
two late payments will not impact an overall good credit
picture. On the contrary, having no late payments does
not mean that your credit is perfect.
There are several key factors that are used in
calculating your payment history:
-- Track record with your lenders: Have you paid your credit cards,
mortgages, car loans, personal loans, etc. on time?
Obviously the greater the amount of accounts with no late
payments, the better.
-- How long is your credit history? - The longer positive credit history
you have, the better.
-- How long has it been since you have had a negative mark on your
credit? - The more recent, the worse.
-- Unpaid debts and public records - Have you experienced any form of
debt that can be viewed in public records? For example:
bankruptcy, judgments, foreclosure, tax liens, collection
lawsuits, wage attachments, etc., can all cause your credit to
be adversely effected.
-- Amount of severe delinquents - One 30 late payment from four years ago
will not effect your credit score. However, multiple late
payments and/or late payments of 90 days or more will
hurt your credit.
Amount of Debt You Have:
Having debt is good, but not too much debt. It is
important that you manage your debt wisely. According to
Fair Isaacs, your debt total makes up about 30% of your
There are several main points that are used in
determining your debt record:
-- Amount of open accounts - It is good to have one or two open credit
card accounts. However, anything more will result in you being
labeled as 'high risk'.
-- Credit balance compared to credit limits - How much of your credit card
lines are you using? You should try and not use no more
than 1/3 of your credit limits.
-- How much do you owe on installment loans? - Showing that you have paid
your loan down is reflective of a responsible credit
Learn more about
how debt-to-income affects your credit score.
Length of Credit History:
The amount of time that you have had credit makes up
about 15% of your credit score.
Factors that determine credit history length include:
-- How many accounts?
-- How long have these account been open?
-- How often do you use these accounts?