Factors Affecting Credit Score
There are five key factors that go into calculating your credit score, with certain items carrying
more weight than others. These factors are as follows:
1) Payment history, which counts for approximately 35% of your score, is the most heavily
weighted factor used in calculating your credit score. Consistently paying your bills on time has
a positive influence on your score, while late or missed payments will hurt you in this area. If
you have delinquent payments, the older the delinquency the less the negative impact on your
score will be. Collection accounts and bankruptcy filings are also taken into consideration when
analyzing your payment history.
2) Total debt and total available credit, which counts for about 30%. This section looks at how
much debt you have compared to the total available credit on your accounts. If all of your
accounts are maxed out, you will be considered a poor credit risk, because it appears that you are
struggling to pay off the debt you have already incurred. If your account balances are relatively
low compared to your available credit, this part of the risk analysis should help your overall
credit score. The score calculation also looks at these two factors independently. Having too
much available credit, whether you have used it or not, could hurt your credit score, as statistical
studies have shown that people with excessive amounts of available credit are a higher credit
risk. Unfortunately, the bureaus do not define exactly what they consider excessive, so best tip is
to use credit conservatively and to keep your debt to credit limit ratio low.
3) Length of positive credit history, which counts for about 15%. The longer you maintain
accounts in good standing, the better your score will be. This shows that you are able to make a
long-term commitment to a creditor and are consistently responsible about making your
4) Mix of types of credit, which counts for approximately 10%. Having several different types of
credit, such as credit cards, consumer loans, and secured debt, will have a positive influence on
your credit score. Having too much of one type of credit can have a negative impact.
5) The number of new credit applications you have recently completed, which accounts for about
10% of your score. Applying for too much new credit in a short time period makes indicates that
you could be credit risk, as you may be desperately trying to keep your head above water. The
models make an exception for people who are shopping around for a loan, so if you are simply
applying to see who can give you the best rate on a new loan, you need not worry too much
about damaging your credit score.
While you cannot realistically calculate your own credit score, you can review your credit report
for on the five factors I named above to get an idea of whether the accounts listed on your credit
report are hurting or helping your credit score. You can then take action to improve any potential
problems, such as paying down your balances or paying off collection items.
Also, factors such as age, sex, income, and length of employment, have no direct affect on your
credit score, and are not considered when the bureaus calculate your score. Keep in mind that for
most lenders, your credit score is only one aspect, albeit an important one, of your overall “credit
worthiness,” meaning the creditor’s view of your ability to repay a loan. Your income, for
example, is not considered in the calculation of your FICO score, but most lenders will ask you
what you earn to analyze your ability to repay the loan. Even if you have an 800 FICO score, if
your income is only $10,000/year, a lender will probably not loan you a large sum of money,
because despite your past credit habits as measured by your FICO score, the lender can see that
you probably cannot afford to repay the loan.
If you would like to learn more about credit reports, credit scoring, and what it means to you,
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