What are the components that make up your credit score?

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(Last Updated On: February 13, 2019)

How-is-your-score-calculated

 

This post is sponsored by Lexington Law. Enjoy!

Do you know what influences your credit score? If you’re just starting to build your credit or if you’re still confused about how your credit actually works, we have got you covered. Seriously. I’m your money talking super hero.

Credit-score

The FICO score is what’s most used by creditors to determine creditworthiness. Here’s a breakdown of the components that make up your FICO credit score to make sure you’re in the know:

 

Your Payment History

The most important of the components that make up your score is your payment history. Payment history accounts for 35% of your actual score. Every time you pay on a loan or owed balance, these payments are recorded and added to your payment history. If you’re late on a payment, or if you default on a loan, these are also recorded. If you don’t pay attention to anything else, pay attention to your payments because they will influence your credit score the most.

 

Your Credit Utilization

Another one of the huge components that make up your score is your credit utilization. Your credit utilization makes up 30% of your total score.

How much you owe on all of your accounts and your available credit both fall under credit utilization. The recommended utilization is 30% of your available credit or lower. For example, if you have a $10,000 credit card limit, you shouldn’t owe more than $3,000 on the card at any given time. Going over this amount could potentially lower your credit score. You can improve in this area by paying off some of your debt to decrease your utilization. You could also request credit limit increases.

 

The Length of Your Credit History

Your credit history length makes up 15% of your credit score. Just keeping credit cards or certain loans open for a specific amount of time can help raise your score. This shows that you’re capable of managing credit for a long term. Your score can also lower if you close an older account, or if you haven’t used an account in a certain amount of time. The longer your history the better. The average history of your accounts is what’s used to calculate your credit history length so try to keep your older accounts open.

 

The Types of Credit You Have

Lenders love seeing diversity on your credit report. This is why your credit mix is one of the components that make up your credit score. Many lenders like seeing a healthy mix of installment loans (student loans, car loans, etc) and revolving loans (like a credit card). Your credit mix makes up 10% of your credit score. While this may not seem like a high number, it still has an impact. Keeping a mix of accounts can boost your score, but you shouldn’t go out and open new accounts just to open them. You should open accounts that you need and that you can manage.

 

Your Pursuit of New Credit

The pursuit of new credit makes up the last 10% of your score. This is also known as inquiries. You don’t want to go crazy with the inquiries because it can show creditors that you’re relying heavily on debt and you could be in some financial trouble. If you do take on new accounts, do it strategically. Make sure you will be using and paying back on the account responsibly. Responsible use of credit can make your score soar.

So there you have it, the five components that make up your credit score. While some are more important than others in terms of percentage, it’s important to pay attention to all of them for a high credit score. Need help improving your score? Credit repair is something you can try, and Lexington Law is a company that can help.

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