Behind the Numbers: What goes into your Credit Score?
So you’ve got your credit report and it has a three digit score. How did the credit bureaus arrive at that figure? Where’s it all coming from? Understanding and learning more about what factors influence your individual number can help you improve your credit score in the years to come.
The Credit Bureaus
The three major credit bureaus (Experian, Equifax and TransUnion) calculate consumer credit scores. Each company has developed statistical models allowing them to determine scores based on your own individual credit history. Certain factors, such as loan payment history, may carry more weight in the scoring of your credit score. So, each factor’s importance can change as your credit report changes and has new information added to it.
There are five broad areas that credit bureaus look at:
• Payment history: Details about credit cards, installment loans (such as car loans), mortgage loans or finance company accounts are considered. Wonder how a late or missed payment may affect you? Well, it shows up in this part of your score, which accounts for about 30% of the total.
• Outstanding debt: Total amount owed and the ratio of what’s owed against your credit limit is factored in for another 30% of the total.
• Credit History: How long you have been building a credit history, how long have specific accounts been established and how you have used each account are all factors.
On average, this category determines about 20% of your score.
• Pursuit of New Credit: Applications for credit and the status of new accounts, including a determination of how recent your accounts are, are looked at for another 10% of total.
• Types of Credit in Use: The numbers of accounts and the different types of accounts, such as Mortgages, Car loans, Bank Credit Cards are the best types of credit usage. The department store Credit Cards, and installment loans are also considered and treated differently. This category usually rates another 10% of your final credit score.
These percentages are only a sampling of how the credit bureau rates your credit. In actuality, these numbers are closely guarded and change as needed to reflect what they feel would be a fair score.