There are about one hundred factors which go into a very complex formula to determine your final credit score. Each of the big three credit reporting bureaus will also have their own way of determining your score, making each one slightly different from the others. However, there are a few major items that you can control which have a large impact on whether or not you will be deemed credit worthy.
Taking up 35% of your overall credit score is your payment history. This information will include account payment history on all types of credit that you may have including credit cards, installment loans, finance company accounts, mortgage and retail accounts. In addition, the severity of any delinquency will also be included as will the amount which is past due on those delinquent accounts. Your payment history will also show the number of past due items as well as the number of accounts which are being paid as agreed.
The amount of money owed will also account for 30% of your credit score. This information will include the amounts owed on accounts and the specific types of accounts in which you owe money. Creditors will also be able to see the number of accounts with balances and the proportion of credit lines which is being used and the proportion of installment loan amounts which are still owed on.
Even the length of your credit history is taken into account when it comes to your overall credit score. For example, the formula looks at the amount of time which has passed since the account was opened and the time since the last activity on the account.
New credit can also have a negative effect on your credit score. If you have opened a lot of accounts recently, then your credit score is likely to be lower. The formula takes into account the number of recently opened accounts, the number of recent credit inquiries, the time since the recent opening, the time since the inquiry, and any positive credit history after past problems. However, if you are shopping for a mortgage, those credit inquiries will not be counted against you as it is assumed that you are shopping for the best interest rate.
Usually, most banks and other financial institutions will be ready to lend money to someone who has a credit score of 700 or above. However, a credit score below 580 is considered to be poor and must work to bring it up to at least a 600. At this level, it is considered satisfactory in many ways that most lending institutions will prefer. Of course, the higher your number, the better off you are going to be when it comes to trying to gain credit.
A lot of times, a poor credit score is the result of not paying bills on time. In fact, it has been reported that 30% of those with poor credit got that way because they fell behind on getting in their payments in a timely manner. In other cases, it can be difficult to raise a poor score due to errors on the report. Therefore, it is important to get a copy of your credit score and report in order to determine if there have been some errors which you can have fixed to quickly improve your score.
There are actually a lot of myths which are out there concerning credit scores. For example some myths include that checking your own standing hurts your score, all credit reports are the same, bad news comes off in seven years, FICO scores are locked in for six months and credit counseling will destroy your credit. None of these are true and it pays to educate yourself on how credit scores actually work.