What Determines Your Credit Score?

Sanderson Ford

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What Determines Your Credit Score?

Your credit score is the most important part of your financial life. Overall, your credit score tells lenders how reliable of a buyer you are. If your credit score is low, you’re likely to pay a higher interest rate on home and auto loans. If your credit score is high, you’ll enjoy a lower interest rate on home and auto loans. In order to keep your credit score high, it’s important to know what determines your credit score.

1. Payment History – Making up 35% of your credit score, your payment history is made up of whether you pay your bills on time, if any of your accounts have gone to collections, and how late your payments were. Even if you make a late payment, how overdue the payment is factors in. The later it is, the more it will affect your score.

2. Amounts Owed – Coming in at 30%, how much you owe is a major determinant of your credit score. How much you owe in total and the amount of credit you use are two major things to keep track of.

3. Length of Credit History – This factor makes up 15% of your credit score and increases over time provided you make payments by their due date. A long history with no late payments is helpful but a short history is just as good as long as you don’t borrow too much.

4. New Credit – Although it only makes up 10% of your credit score, how many new accounts you have helps lenders determine your credit risk. People tend to open many new accounts when they plan to take on new debt and that can be a major turnoff to lenders.

5. Types of Credit – The final 10% of your credit score is determined by what types of credit you use. A mixture of different credit, like credit cards, store accounts, and mortgages, make for a good score. Don’t open new accounts just to improve this section of your score. You could just as easily hinder the new credit portion.