What Determines your Credit Score?
There are five key elements to your credit score: payment history, amounts owed, length of credit history, new credit and types of credit in use. 65% of your credit score is based on your payment history and the amounts that you owe to your creditors. Length of credit history accounts for 15%, while new credit and types of credit in use each account for 10% of your score.
Payment History
This element of your credit score examines how punctual you have been in paying your credit accounts in the past. It also includes any collections that have been made against you and if there are in public records against you such as a bankruptcy.
To improve this element of your credit score pay your credit accounts on time and avoid having your accounts go to collection. As you work to pay your accounts on time, older late payments will have a progressively weaker influence on your credit score.
Total Amount Owed on Credit Cards and other Revolving Loans
This elements of your credit score focuses on the percentage of the credit that is available to you that is used up. The score is based on the fact that if you are maxed out on your credit, you are considered a higher risk than someone who has ample room on their credit cards and lines of credit.
To improve this element of your credit score try to avoid maxing out your credit cards and lines of credit. A good rule of thumb is to keep your balances below 50% of your credit limit.
Length of Credit History
This element of your credit score examines how long your credit history is based on how long your credit accounts have been open.
To improve this element of your credit score try to avoid closing out older accounts and opening new credit accounts frequently. A longer average age of your accounts will increase your credit score.
New Credit
This element of your credit score examines if you have been excessively seeking new credit in the recent past. It looks at such things as how many new credit accounts are in your credit record, when your most recent credit account was opened, and the number of recent inquiries on your credit file.
To improve this element, dont open any new credit accounts that you dont need.
Types of Credit in Use
This element of your credit score examines what mix of different types of credit accounts you have in your credit file such as revolving accounts and installment loans.
You can improve this element by having different types of credit accounts and using them responsibly.
