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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 questions. Please contact us.

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.

Payment History:
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 credit score.

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 behavior.

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?

How Much New Credit Do You Have?
Too much new credit is a sign of overextending, and will label you as 'high risk'. This factors makes up about 10% of your overall score.

Aspects that help calculate new credit:
  -- How many new credit card accounts do you have?
  -- When was the last time you opened up a credit card account?
  -- How many inquiries have you had on your credit report in the last year?
  -- Is your new credit history positive?

Having a Healthy Mix:
Having a variety of different things on your credit report is good. You should always look to have at least one, but no more than two credit cards that you use and pay in full every month. Having a car loan, personal loan and/or mortgage that you pay on time will also be help your credit score.

Additional articles concerning credit reports:
The Value of Getting a Copy of Your Credit Report At Least Once a Year
Understand the Data Being Reported in Your Credit File
Correcting Errors on Your Credit File
Improving Your Credit Score  
The Impact Of Credit Inquiries on Your Score

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