Five Factors That Affect Your Credit Score

Five Factors that affect your Credit Score

Your credit score or FICO is calculated by five major factors. This score can affect your chances of getting great rates on credit cards and loans. There are three major credit bureaus that vary in the method of calculating these rates. These include

Your credit score parameters are between the numbers of 300-850.

On-time payments

Did you know 35% of your score is calculated by paying your bills on time? This factor makes up the largest percent of your credit score. On average, those who pay their bills on time at all times average a 706 score. One missed payment is a drop zone, the score averages 658.

There are an additional three factors that determine score deductions within the 35%.

How much time has passed since missing that payment?

How many payments were missed?

How behind did you get? (Bill collections or bankruptcy)

Current payments owed

Thirty percent of your score is comprised by current payments as a percentage of all credit that is available.

What do you owe monthly on home and auto loans and credit cards? This number is calculated by dividing available credit by current due. The lower percent used on available credit shows self control and favors you in future credit endeavors. The average American uses less than 30%.

With this knowledge, you can improve your score by paying down balances on what is owed. As a general rule, people who keep their credit limits near limit are most likely to default.

Credit counseling is available to those in this scenario and a debt management plan can help.

Length of extended credit

Fifteen percent of your score is calculated based on time you have had your credit available. Long term credit and on time payments show favorable behavior in repayment.

Recent Credit Applications

Ten percent of your score is based on the date of application of new credit. Any perceived need of money is viewed negatively. Did you know when your credit score is checked by new lenders, it also negatively impacts your score?

Unless you are seriously shopping for a new loan, do not authorize lenders to view or pull your score.

Credit types

There are two types of credit that affect another ten percent of your score; revolving credit and installment loans. A home mortgage is an example of an installment loan and is highly viewed. Credit cards are revolving credit.

Higher scores in this 10 percent category are given to those that have credit from various sources.

Conclusions

These five factors of a credit score are mathematically based through statistics. It is comprised of years of loans and defaults. This method favors lender's decision on borrower's based on role models of typical behavior on a certain score.

There are clear ways that a consumer can improve their score if they understand the credit score system and make changes for improvement.

The disadvantage of this method is there is no measure for the human factor. People can be misrepresented, denied loans or pay high fees based on models of other's behaviors.