Wednesday, August 27, 2014


Understanding Your Credit Scores:  Part 2

In part 1, we covered the basics of your personal credit scores and the importance of maintaining good credit. Today, I plan to cover a brief explanation of the major factors on  how the 3 bureaus, (Experian, Equifax, and Trans Union), determine and calculate your credit scores. Please note that your creditors do not report to all 3 bureaus all the time, which is why scores may vary by a large margin sometimes. A score of 720 or above is considered a very good credit score.

There are 5 factors that make up your credit score, and each factor weighs differently on your score. 

Here is the breakdown 35% of your score is based on Payment History: The biggest chunk of your score, payment history, tells lenders how you pay your bills. Late payments, past due accounts, and public records such as bankruptcy can seriously hurt your score.

30% of the score is based on Amounts Owed:  This is the second biggest factor affecting your credit score. This factor takes into account how much is owed on all accounts, how many accounts carry a balance, and what percentage of your available credit are you using.

10% of your score is based on New Credit:  This factor includes the number of recently opened accounts, the number of credit inquiries, how often you apply for credit, and the time since each account was opened.

15% of the score is based on Length of Credit History: This factor scores you on how long you have had credit, the time since you opened an account, and the time since recent account activity.

10% of the score is based on Types of Credit Used:  A mix of credit is the best way to develop a good score. The most important consideration is to be picky about the credit you apply for. For instance, and most people don’t realize this, but third party financed credit cards (i.e. department stores ) are considered to be particularly low quality credit as the holder of such cards can appear desperate for credit , to the scoring system.
    So there you have it...the basics on how your scores are determined.

Joey Greenwood

No comments:

Post a Comment