Debt Counseling Corp.
3033 Expressway Drive North
Hauppauge, NY 11749
Phone: 1.888.354.6332

What a Credit Score Consists Of

Credit scores have a certain mystery about them. How are credit scores calculated, anyway? Why is my credit score lower than my Aunt Mary’s score, while I have paid everything on time for the past 6 months, and she can barely remember to read her mail, let alone pay her bills. What follows is a guideline to explain how different credit activity is weighted differently when your credit score is calculated.

35% Payment History:
A lender will want to review a potential client’s payment history to see if previous accounts have been paid on time. The score will review payment information on:

  • Credit card accounts
  • Public record items such as bankruptcy, foreclosures, liens, etc.
  • Details of late payments 30, 60, 90, how recent was it and the frequency of it.
  • A good track record will increase your score.

30% Amounts Owed: Your score will take into account:

  • The amount owed on all accounts: (note that even if you pay off the entire balance of an account each month your credit report may show a balance every month)
  • The amount you owe on all accounts, and on different types of accounts: (the score considers the amount you  owe on specific types of accounts, for example: credit cards, loans, etc.)
  • Having accounts with small balances without missing payments shows credit responsibility.
  • A large number of accounts having balances can indicate a risk of over-extension.
  • Balances close to or over the limit may indicate you have trouble making payments in the future.

15% Length of credit history:

  • Generally a longer credit history will increase your score
  • Although people who have established credit for a short time may have a good score, brief credit histories do not guarantee a better than average score, depending upon how the rest of their credit report looks.
  • Keep in mind if you have only had credit for a short time, opening a lot of new accounts rapidly may decrease your score.

10% New Credit:

  • How many new accounts do you have?
  • How long has it been since you opened a new account?
  • How many recent inquires for credit have been made?(inquires stay on your credit report for 12 months)
  • Establishing credit and timely payments on such shows improved behavior and will increase your score over time.

10% Types of credit in use. The score will consider the mix of and total number of:

  • Credit cards
  • Retail accounts
  • Installment Loans
  • Mortgage loans
  • The total amount you have and for different credit profiles – how many is too many?

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