Everyone knows that their credit history impacts their credit score, but let’s explore some of the lesser known numbers that make up your overall score that will be within the range of 300 to 850.
Payment History (35% of your score)
This is what would seem to be the most obvious portion of your score, and it makes up more than one-third, so it is a very important part. Creditors want to know how you have paid your bills historically to gain an idea on how well you will pay your debt to them.
Outstanding Debt (30% of your score)
Creditors want to know how much money you owe other people before they decide whether or not you are a risk.
Length of Credit (15% of your score)
Creditors will tend to look at someone with 40 years of good credit history a little more favorably than someone with only four months of history.
New Credit (10% of your score)
Are you taking out a large number of new loans this month? Creditors will review your new credit activity to make sure that you are not overextending yourself.
Diversification (10% of your score)
Creditors want to know that you have a history of managing different kinds of credit well and will check the diversification of your past and present credit lines.
Understanding all of the elements that impact your credit score can help make you a wise borrower. In lean times improving your credit score is more important than ever.
Ann Hudson is an advocate for consumers understanding their credit and their credit rights. She received her B.S in Marketing from the University of Utah in 2004 and went on to receive her MBA from Western Governors University in 2009. Ann has a consulting relationship with the nation’s leading consumer credit advocacy firm: Lexington Law.
This came at a perfect time. Our daughter is really trying to understand the credit score issue and I was trying to answer her but this does a better job. She has perfect credit just not much of it and she is helping fiancee to fix his little credit dings as he doesn’t have much credit either.