Factors That Make Up a Credit Score

Your credit score is a tool that lenders use to measure to risk of doing business with you. Your credit score is one of the largest pieces that determines if you qualify for a home loan. Here are the factors that make up a credit score.

Factors That Make Up a Credit Score

Payment History

Payment history is the most influential category of your credit score. Simply, if you have a track record of paying all of your bills on time, you are set in this category. The presence of negative information on your credit report will result in a lesser number of credit score points awarded. If you are looking to work on improving your credit history, consider focusing your efforts on this category first as it plays a major role in your overall score.

Amounts Owed

This category looks at the amount of your total debt. This section makes up 30% of your total credit score. Revolving utilization, or the debt to limit ratio on your credit account, is the most important factor considered within this category. Generally, the fewer number of accounts with balances on your reports, the better.

Age of Credit

Did you know that the age of credit also matters? This category makes up 15% of your credit score. Age of credit is comprised of the average age of accounts, how long accounts have been open, and the age of the oldest account. Because of this, it’s not always a good idea to terminate retail lines that you opened in high school/college. These accounts show longevity in your credit account.

Mix of Existing and New Credit

The mixture of accounts on your credit reports is also examined. Both existing and new credit is worth 10% of your credit score. It can help your credit score to have a variety of different account types on your reports. These account types include revolving credit account like credit cards, installment payments like student loans, auto loans, and mortgages. The mixture of loan types positively effects your score. Be cautious of applying for credit too often. When a lender pulls your credit it shows as an inquiry. Too many inquiries and it can negatively affect your credit. The good news is that any harm an inquiry has on your report only lasts for 12 months’ maximum. Additionally, if you’re shopping for credit, like a mortgage or auto loan, multiple inquiries within a short amount of time may only be counted once for scoring purposes.

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