What a Credit Score Consists Of
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:
The total amount you have and for different credit profiles – how many is too many?
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