How is the Credit Score Calculated
While credit bureaus collect a lot of different information about you, there are five main categories of data that make up your credit score. Each category is weighted differently in calculating the credit score.
- Payment History: 35%
- Amounts Owed: 30%
- Length of Credit History: 15%
- New Credit: 10%
- Types of Credit Used: 10%
As the percentages illustrate, some factors are weighted significantly higher than others. However, each has their importance in your credit score.
Payment History:
Your payment history includes information on the different types of accounts you may have. Both positive and negative information can be contained in your payment history. On the positive are those accounts that you have paid on time. Also included is any negative credit information such as bankruptcy, lawsuits, liens, wage garnishments, etc. Additionally, your payment history also includes information about any delinquent accounts such as past over due the accounts and how long ago they were overdue; and any current overdue accounts and negative actions taken to collect on these accounts. Your goal should be to simply pay your bills on time to avoid any negative consequences on your credit score.
Amounts Owed:
The amount you owe reflects a number of different factors that work in conjunction with each other. These factors include the total amount you owe and the different types of accounts; the number open accounts you have; and the proportion of your credit you have used. This last part is known as the credit-utilization score and its importance is to determine whether or not you are overextended. The lower the proportion, the better.
Length of Credit History:
Essentially, your length of credit history reflects the amount of time your accounts have been open and the time since your last activity. While having older credit is better, it's not wise to leave an account open you are not using.
New Credit:
This category includes information on the number of recently opened accounts, recent credit applications and the amount of time since these accounts were opened or requested.
Types of Credit
Types of credit include credit cards, installment loans, mortgages and other types of consumer accounts.
While each of these factors comprise a proportion of your credit score, it is important to note that the percentages are only general guidelines to the importance of each factor. Ultimately, the important of each is in relation to the information specific to you on your credit report. However, it is important to keep these factors in mind as you manage your credit. If you manage your credit wisely, you should not have to worry about your credit score.