How Your Credit Scores Are Calculated

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Understanding Your Credit Score

When it comes to repairing your credit, your credit score is a vital piece of information that will help you gauge your progress. Your credit score is a three-digit number that represents your credit standing at a given point in time.

Credit scores typically range from 300 to 850. Higher credit score are better than lower credit scores. The credit score is calculated based on the information thats in your credit report. If you have a lot of negative information in your credit report, youre more likely to have a low credit score indicating your risk. The credit score calculation gives more weight to certain aspects of your credit history.

Payment history is 35% of your credit score. This includes the timeliness of your credit and loan payments. Severe delinquencies like 90+ day late payments, charge-offs, collection accounts, bankruptcy, foreclosure, repossession, and judgments will all have a significantly negative impact on your credit score. On the other hand, positive payments history will vastly improve your credit score over time.

Level of debt is 30% of your credit score. Ideally, you should have a low level of debt. Your credit utilization is the ratio of your credit card balances to your credit limits. The higher your credit card balances, the riskier a borrower youre considered to be and the lower your credit score will be. Your credit score also considers your loan balances compared to the original loan amount. The further you pay your loan balances the better.

Age of credit history is 15% of your credit score. The longer youve had credit, the better your credit score will be. Newer accounts lower your credit age and make it seem as though youre less experienced with credit.

Mix of credit is 10% of your credit score. This considers the different types of credit youve had experience with. Your credit score will be better if you have experience with credit cards as well as installment loans like auto loans and mortgages.

Recent applications for credit count for 10% of your credit score. Each time you make an application for credit, an inquiry is placed on your credit score. Lenders view too many inquiries as either taking on too much credit at once or a desperation for credit, so your credit score can drop if you have too many inquiries within a short period of time.

Its important to understand what affects your credit score. That way, you have a better chance of making decisions that will help your score rather than hurt it.

by: Juan J. Medina

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