What Makes Up Your Credit Score?
Learning how to improve your credit score starts with understanding what goes into the calculation. Here are the things that make up your credit score and what causes the number to go up or down.
Your credit score is an algorithm. That is a fancy term from mathematics that means many things are used to calculate your score. They are given different weights in the calculations based on their perceived importance.
Here are the main categories and their respective weights in the calculations:
Payment History (35% weight)
Always pay everything on time. A single late payment is very damaging to your credit score.
Amount Still Owed (30% weight)
As a rule of thumb, restrict the use of your credit to half of the limit and frequently pay down the balance. Paying off a credit card at the end of each month, to avoid paying interest, saves money wasted on interest payments. This is also a wonderful thing that improves your credit score.
Length of Your Credit History (15% weight)
Showing many years of good payment records on your credit history is very powerful and improves your credit score dramatically.
New Credit Recently Added or Applied For (10% weight)
Having many recent credit inquiries about your credit history is a red flag These show up on your credit report when you apply for new credit. This can negatively impact your credit score.
Be sure you know who is accessing your credit file. If you don’t want unsolicited credit offers, you can lock your file at the three credit bureaus. If your file is locked you can then unlock the file just for the lenders that you approve.
In some states, this is a free service required by law. In other states, there may be a $10 fee for each time you unlock your credit file. Locking your file is free. Locking and unlocking can be done online at the websites of the credit bureaus Equifax, Experian and Transunion.
Some systems have monthly memberships that offer this service combined with sending you email notifications of changes when they are made to your credit history file. If you want to permanently lock your accounts, so no one can get access, you can freeze them.
Kinds of Credit You Use (10%)
Good credit scores come from a balanced mix of installment payments, such as an auto loan, and credit line payments, such as credit cards. Having a home mortgage is a plus.