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What Factors Make Up Your Credit Score

Your Credit Score is the number assigned to the information contained in your credit report.  Your Credit Score is the number used by lenders to make decisions on whether or not to lend you money.  Your Credit Score is the number that allows you greater financial opportunities.  Your Credit Score is your “adult GPA.” Your Credit Score is the number you should care about. You should work toward making it the highest and best number possible.

In an effort to improve your credit, you need to know what factors affect your score.  Specifically, there are five factors that are used to calculate this number.  Each of these factors contribute differently to your final number.  The five factors that contribute to your credit score are: Payment History, Amounts Owed, Length of Credit History, New Credit, and Types of Credit in Use.  These factors are used to calculate your score, which can range from 300 to 850.  The credit reporting agencies compile your information to create a score for you based on the information contained in your report.

Payment History

Payment History makes up the largest portion of your score at 35% of the total number; this makes it your score’s most important contributing factor.  Lenders want to know the likelihood that you will repay them if they lend you money.  Payment History consists of numerous factors, including timeliness of repayment, how late you have paid back loans, and whether you have collection accounts, charge-offs, bankruptcies, tax liens, etc. in your history.

Amounts Owed

The second largest contributing factor is Amounts Owed, which is 30% of the score.  Amounts Owed is the overall amount of debt you are carrying.  While you may be responsible for making timely payments, if you only pay the minimum amount owed each month but continue to incur debt, your credit score will reflect this.  A good credit score means more than just timely payments. It means you have a reasonable debt to credit ratio, which is the amount of credit available to you compared to the amount of credit you have used.  The less debt you have, the higher your credit score.

Length of Credit History

The Length of Credit History is the third contributing factor, amounting to 15% of your credit score.  Your credit score takes into account the age of your accounts and how long you have been utilizing credit.  It is best to leave some older accounts that are in good standing open so that they will reflect positively on your score.

New Credit

New Credit contributes 10% of your overall credity score.  While 15% of your score relies on how old your accounts are, in contrast, 10% relies on opening new accounts.  Every time you apply for credit, lenders access your report, which can negatively impact your score.  Too many inquires can lower your score and leave lenders wondering why you are applying and/or getting rejected for new credit. This may make them consider whether you may be a credit risk.  Experts say that lenders only consider your credit inquiries over the past year, so try to limit too many applications within a short period of time.

Types of Credit in Use

The last contributing factor to your score is Types of Credit in Use.  Your score relies on credit diversity.  If you only have one type of account, your score will reflect this.  Try to financially diversify yourself by maintaining different types of credit, such as credit cards, a mortgage loan, and an auto loan.

While each of these five factors contributes to your score, financial awareness is the key to financial responsibility.  When it comes to maintaining a good score, try to pay all of your obligations on time. Be mindful of how your credit decisions affect your credit score and your future ability to get credit.

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If you believe your rights have been violated and would like the advice of assistance of counsel, contact SmithMarco, P.C. for a completely free case review. 

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