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.