Your
credit score is a number that is used to predict how likely you are
to pay a bill on time. Your score is based on your credit history, debt
and other factors at the time of the report. This will affect how much
you pay in interest, if you can even get a loan and if you can rent
an apartment. This can have real and long term effects on your personal
finances, but what affects your credit score and how is it calculated?
Your Credit Scores Five Parts
Credit scores analyze the credit-related information of your credit
and payment history. Methods to accomplish this can vary, however FICO
scores are generally used. Here is how the various aspects of your history
affect your scores.
Your Payment History
This is approximately 35% of a FICO score
Late payments, bankruptcies and repossessions can negatively affect
this part of your score. However a long history of paying your bills
in a timely manner will have a positive effect.
Your Debt
This is approximately 30% of a FICO score
Credit scores look at the amounts you owe on everything and the total
amount of your available credit that you are using. The more of your
available credit you use the worse your credit score will be in this
area. The Length
of your Credit History
This is approximately 15% of a FICO score
A long credit history will increase your credit score. Don't worry though,
if you have a responsible but short credit history you can still achieve
a high score. Basically if you're questionable about paying debt in
the eyes of creditors than more data and time is helpful to those accessing
your credit score. New Credit
This is approximately 10% of a FICO score
If you have recently taken out new lines of credit, this can possibly
have a negative effect. Credit scores are calculated to reflect if you
are shopping around for a single loan or if you are attempting to find
a variety of new lines of credit. They do this by analyzing the industry
you are looking in (for example home or auto loans) and the amount of
time these inquiries occur over. You should limit your loan search inquires
to within a 30 day period to prevent a negative effect on your score.
Also be aware that someone who is taking on a lot of credit from several
different areas could be red flagged as someone in trouble. Diversification
and Other Factors
This is approximately 10% of a FICO score
Having a diverse group of creditors can help your score slightly. For
example having a home loan, auto loan and a credit card balance is considered
better than having just credit card debt. Other minor factors that can
affect your score are also added to this section. |
