Five Determining Factors of Your Credit Score

There are five (5) key credit determining factors that are widely used in calculating your credit score. The actual credit score number may be different depending on which credit reporting agency (Experian, Equifax or TransUnion) pulls the information and what kind of credit score model is used.

Credit payment history determines 35% of a your Credit Score                                                                        The number one thing all lenders wants to know is whether you’ve paid past credit accounts on time. This is one of the most important factors in determining your Credit Score. A few late payments will not severely damage your score. However, an overall good credit picture can outweigh one or two instances of late credit card payments. 

Amount owed on accounts determines 30% of a Credit Score                                                                           When a high percentage of a person's available credit is been used, this can indicate that a person is overextended, and is more likely to make late or missed payments. Try to keep your balances no more than 30% of total credit line. For example, if your credit limit is $1000 then the amount you that you owe should be no more than $300.  

Length of credit history (15%)                                                                                                                                          In general, a longer credit history will increase your Credit Score. Individuals who have not been using their credit for a long time, may have high Credit Scores, depending on how the rest of the credit report looks. 

Your Credit Scores take into account:                                                                                                                       The length of time your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all your accounts 

The length of time specific credit accounts have been established

How long it has been since you used certain accounts

New credit determines 10% of a Your Credit Score                                                                                                  People who tend to have more credit will shop for new credit fairly frequently. Your Credit Score will show how many times you attempt to apply for credit. If you open several new credit accounts in a short period of time, this poses a greater risk, especially for individuals whose credit history is not very long. Credit Reporting Agencies take into account several factors, including how you shop for credit. 

How many inquires that you have:                                                                                                                               An inquiry occurs when a lender makes a request for your credit report or credit score for the purpose of considering you for goods and services. Inquiries will remain on your credit report for two years, although most Credit Reporting Agencies will only take into account those inquiries from the last twelve (12) months. The Credit Scores have been carefully calculated so that only those inquiries will truly affect and impact credit risk, because not all inquiries are related to credit risk. 

Credit variety determines 10% of your Credit Score                                                                                          Credit reporting agencies will take into account your mix of credit cards, retail accounts, monthly installment loans, bank and finance company accounts and mortgage loans. They are looking for the variety of your credit. While it is not necessary to have one of each, it is also not a good idea to open several credit accounts that you do not intend to use. 

The credit mixture and variety usually will not be a determining factor in calculating your Credit Scores—but it will be very important if your credit report does not have a lot of other information and lacks the credit history needed to base an accurate score.  

 It is okay to have credit cards – but manage them very responsibly.                                                         Having credit cards and installment loans with a good payment history will raise your Credit Scores. People with no paying history with bank loans and credit cards tend to be viewed as a higher risk than people who have managed credit cards responsibly. 

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