» Credit Score Scale - What Makes Up Your Credit Score?

Credit Score Scale – What Makes Up Your Credit Score?

February 10th, 2009, Written By: admin

The credit score scale is not as complex as it sounds. Ultimately there are 5 major parts that determine how good or bad your credit score may be. Once you have a clear picture of what exactly makes up your credit rating, you can use that information to increase and improve your score. As a result, you’ll get approved for credit quickly, get better rates on your loans, and you could even reduce your insurance rates.

First thing to realize that the exact elements that make up your credit score are not publicly known. Credit experts have pretty much figured out how your rating is calculated, but these numbers are not set in stone.

Secondly, it is important to realize that recent events have a greater weight on the credit score scale than current events. That can be both good news and bad new. Recent late payments will greatly impact your score, while recent good payment history will improve your score. That provides an opportunity for people who want to increase their credit score to do so relatively quickly just by paying their bills on time.

The Credit Score Scale

The biggest part of your score is your previous payment history. This makes up about 35% of your credit score. The more late payments you have on your report, the more it will hurt your score. Your ability to pay your debts and bills on time has the greatest effect on your score. This should be no surprise here.
How you use and manage your credit is a close second. Lenders like to see that are capable of managing your money properly. You want to have a lot of credit available to you, but low balances. Consumers who are close to reaching their credit limits are statistically likely to be late on their payments. Keep your balances below 30% of your available credit. Your credit use is about 30% of your credit score scale.
The length of your credit history is the next most important factor. In other words, the longer you have accounts open and are a customer with your billing agencies, the better it is on your score. That’s why it is not always a good idea to close credit card accounts. The history of owning credit cards for a long time is good for your credit rating. This accounts for about 15% of your score.
Lenders like to see your ability to manage different types of credit. Having both installment loans (such as a mortgage and car payment) and revolving credit (such as your credit card) in good standing will help your score. This is about 10% of your credit score’s value.
Lastly, inquiries on your account makes up the remaining 10% of your score. It is okay to shop around and compare auto loans and mortgage rates, but you don’t want to go out and open multiple credit cards in a short amount of time. That’s a signal to lenders that you are having money problems and may be about to embark on a spending spree.