Do you feel as if your credit score rating is a big mysterious secret?
It’s a reality that lots of people feel that way, and the credit bureaus don’t want to give out the exact way they come up with your credit score. It makes good sense to have a good understanding of how your credit score is calculated.
If you know how your credit score is calculated you can take steps to establish and maintain a good credit score.
If you have no idea how your credit score is calculated how can you know what to do and what not to do?
You have to know what information is contained in your credit report and how it is used to determine your score if you are going to be in the drivers seat to gain control of your credit history and make the necessary changes.
Here’s a credit score breakdown that will help you make financial decisions:
• Mixture of credit… using a variety of loans and paying them back as agreed counts for ten percent of your credit score. Credit lines such as car payments, home loan, and a few credit cards. This will show how you handle credit.
• Credit inquiries… count for ten percent of your score. The more creditors that look at your credit history the more your score will go down.
There is an exception that has no impact on your score and that is you looking into your own report.
• The length of your credit history… counts for fifteen percent of your score. The longer you have credit, the better. On the other hand having credit for a long time and not paying responsibly is of no help.
• How much you already owe… counts for thirty percent of your rating. This is your debt-to-income ratio. Keeping the total amount of money you owe at or below twenty-five percent of your income will generally be in your best interest.
• Your payment history is the most important factor… in determining your credit score. It counts for a whopping thirty-five percent of your rating. If you are careful about making your payment on time, you are considered a good credit risk.
If you have had a late payment your score will drop significantly.
In conclusion, if you want a positive credit score, pay your bills on time, keep your debt ratio low, and only apply for credit if you are serious about using it so you don’t end up with unnecessary inquires.
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