How is Your Credit Score Calculated?

Do you want the highest credit score possible?  If so, you are not alone.  In fact, I think it is safe to say that just about everyone wants to have the best credit that they can.  After all, it makes life so much easier and cheaper.

The challenge is the few people understand what goes into their credit score and because of this they struggle to know where to begin credit restoration.   Let’s take a look at the five key factors that make up your credit score.

1. Past Payment History – It is probably not a surprise to you that how you pay your bills is the most important factor that goes into your credit score.  It accounts for 35% of your overall score.   The good news is that if you have had problems in the past how much they will impact you will decrease over time. Recent credit history is weighted much more heavily that older credit.
2. Credit Utilization Ratios – 30% of your overall score is derived from how much credit you are using.  Specifically it comes from how much credit you are using versus how high your credit lines are.
3. Depth of Your Credit File – 15% of your credit score comes from the depth, or how old, your credit file is.
4. New Credit and Credit Report Pulls – How many recently opened accounts that you have and how many recent inquires have been made in your credit file accounts for 10% of your total score.  Studies show that excessive inquiries make a person much more likely to open a lot of accounts and ultimately file bankruptcy.
5. Type of Credit  - The type of credit you are using is also an important factor in determining your credit score.   If at all possible, you should stay away from finance companies and other high risk type loans because they will lower your score.

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