Credit scores based on the standard FICO® Score, typically range from 300-850. There are some industry-specific credit scores, such as VantageScore or TransRisk, which can range from 100-900. Regardless of which one is being used to score your credit, if you are looking at a base FICO® Score or an industry specific score, the same rule applies, higher is better. There are five factors that determine your score:
35% Payment History
30% Available Credit
15% Age of Credit
10% Types of Credit
10% Credit Inquiries
Payment history is 35% of your credit score. How timely you pay your bills affects your credit score more than any other factor. Serious payment issues, like charge-off, collection, bankruptcy, repossession, and foreclosure can seriously devastate your credit score, making it almost impossible to get approved for anything that requires good credit.
Note: Making your payments on time each month is one of the best thing you can do to maintain good credit
Your current level of debt is 30% of your credit score. The amount of debt you have overall, the ratio of your credit card balances to your credit limit (credit utilization), and the relation of your loan balances to the original loan amount. Having high balances or too much debt can negatively affect your credit score.
Note: Your credit score can improve in this area if you pay down your balances.
Age of Credit
Your credit history is 15% of your credit score and considers both the age of your oldest account and the average age of all your accounts. Having an "older" credit age is better for your credit score because it shows that you have a lot of experience handling credit. Opening new accounts can lower your average credit age. For that reason, it's typically not a good idea to open several new accounts at once.This isn’t just impacted by how long you’ve had access to credit. It also takes trends in payment patterns and credit applications into account.
Note: while having a long history of good credit can boost your rating, a habit of missing payments or applying for new credit can dramatically decrease your score.
Types of Credit
There are two basic types of credit accounts: revolving accounts and installment loans. Having both types of accounts on your credit report is better for your credit score because it indicates you have experience managing various types of credit. Types of credit is only 10% of your credit score, so not having a certain type of credit, e.g. an installment loan, won't devastate your credit score.Having a mix of credit products, such as a mortgage, a car loan, a home equity loan, and one or two credit cards is considered healthier than having multiple credit cards.
Note: Striking the right balance between types of credit can improve your credit score.
Each time you fill out an application that requires a credit check, an inquiry is placed on your credit report showing that you've made a credit-based application. Inquiries are 10% of your credit score. One or two inquiries won't hurt terribly, but several inquiries, especially within a short period of time can cost tens of points. Keep your applications to a minimum to preserve your credit score.
Note: Only inquiries made within the last 12 months are factored into your credit score. Inquiries fall off your credit after 12 months.
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