What is a Credit Score?

Kate Marrone Info on Home Financing

What is a Credit Score?

Your credit score is a number between 300 and 850.  This number represents the statistical likelihood that you will repay creditors.  Your score is based on 5 different areas, with some parts carrying more weight than others.

1.  Your payment history – makes up 35% of your credit score

  • Do you pay your accounts on time?
  • Do you have a solid record of on-time payments over a period of time?
  • Have you made any late payments?
  • Are there any other negative items?  How severe?  How many?

2.  How much you owe – makes up 30% of your credit score

  • How many credit accounts do you have?
  • How many accounts have balances?
  • How much of your available credit are you using on each account?
  • How much do you owe over all your accounts?

3.  Length of your credit history – makes up 15% of your credit score

  • How long have your accounts been established?
  • How long has it been since you’ve used certain accounts?
  • The longer period of time available to see how you handled your credit, the better.

4.  New credit – makes up 10% of your credit score

  • Creditors consider consumers a greater risk if they have opened several credit accounts in a short period of time
  • New credit has a different effect if it’s attempts for multiple different accounts spread out versus if it’s shopping for rates during a limited period of time

5.  Types of credit in use – makes up 10% of your credit score

  • Having a mix of different types of credit is best, for example: credit cards, installment loans like a home mortgage or auto loan, other lines of credit, etc.