Deciphering The Credit Score Formula – What Makes Up Your Credit Score?

1) Types of Credit in Use: About 10% of your score 

Credit score calculations consist of complex formulas that take into account both the types of account, their mix and the total number of credit accounts in your name.

Credit account types include: credit cards, retail accounts, installment loans, finance company accounts and mortgage loans.

2)  Pattern of Credit Use: About 10% of your score

The number of new accounts you have and the type of  the account  is part of your score.

Also how long has it been since you opened a new account and the type of account it was.

How many credit checks have been made recently?  They are trying to determine the number of accounts you have, or are trying to open.  However, ordering your credit report/score to check for accuracy does not count (this is considered as a consumer initiated inquiry).  Same applies to lenders checking your credit (this does not count either).

 Length of time since credit report inquiries were made by lenders. 

It also looks at your recent credit history following past payment problems.. Re-establishing credit and making payments on time after making late payments will help to raise your score over time.

3) Length of Credit History: About 15% of your score 

In other words, how old are your accounts, i.e. how long has it been since you first opened the account.  The age of your oldest account and the average age of all accounts is are included in the credit score calculation.

How long specific credit accounts have been established.

How long it has been since you used certain accounts.

4) Amounts You Owe – Approximately 30% of your score 

The total balance on your last statement is usually the amount shown in your credit report. So even if you pay off your cards in full every month, they may still show a balance due to timing of the report.

A large number of accounts with balances can indicate a higher risk of  being  over extened.

How much of the total credit line is being used on credit cards and other “revolving credit” accounts. Someone closer to “maxing out” on many credit cards may have trouble making payments in the future.

How much do you still owe on loans compared to the original loan amount. Paying down installment loan balances is a good indication that you can manage and repay your debts.

5) Payment History: Approximately 35% of your score 

This includes credit cards, retail accounts (stores where you charge your purchases), installment loans (car loans), finance company accounts and mortgage loans.

Details on late or missed payments – how late your payments were, how much was owed, how recently they occurred and how many there are. A 30-day late payment made just a month ago will count more than a 90-day late payment from five years ago. Closing an account on which you had previously missed a payment does not make the late payment disappear from your credit report.

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