What makes up a Credit Score?

by Debbie Vasen | More from this Blogger

28 Jul 2007 07:08 AM

Ever wonder all the basics of what is used for your credit score? Well, here it is, in black and white... and a little grey.

To create a credit score, some of the information on your credit report is fed into a mathematical formula. The critical information and their importance are as follows:

Account Types - This includes mortgages, car loans, and credit cards. The importance of your types of accounts is about 10% of the overall score.

Number of Recent New Accounts - Just how many new accounts do you have in proportion to the total? This is another 10% of your total score.

Payment Histories - Pretty basic, either you pay on time or not. Although simple, this piece of your credit report is the largest category at 35%.

Account Balances - Exactly how much you owe on all debts as a snapshot in time. This is the second highest at 30%.

Length of Credit History - How long you have had an active credit report impacts this rating and comprises the last 15% of the total.

Essentially, in order to get a good score, you must have met the following conditions:

Account Types - a large variety of account types showing your ability to diversify your credit.

Number of Recent New Accounts - too many newer accounts sends up a red flag. Ideally you want to have a large volume of older accounts.

Payment Histories - this is certainly the main factor in a credit score. Are you a risk? Do you always pay on time? Have you ever had problems with creditors? The more consistent you are in following through on your credit obligations, the higher your score.

Account Balances - is a factor of both how much you owe and what percent that is of your total available credit. Owing a low percentage of your totally borrowing amount and avoiding maxing out your available credit receives the highest score.

Length of Credit History - while there isn't much you can do here but wait, certainly the longer your credit history, especially if it has been responsible, the higher the score.

Related Articles:

*How Important Is My Credit Score?

*Understanding Your Credit Score

*5 Ways to Ruin Your Credit Score Fast

Learn more about Debbie Vasen

Debbie Vasen is a published web content editor and writer, as well as a freelance writer for various print publications. In addition to blogging at Families.

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