How Is My Credit Score Calculated?

How Is My Credit Score Calculated?

Understanding how your credit score is calculated is critical when trying to build your credit.  There are several different factors that make up your credit score.  These factors are grouped into five different categories; all of which are weighted by different percentages.  Knowing this information can help anyone who wants to build their credit as fast as possible.

Your credit score (also known as FICO or Beacon) considers both positive and negative information in your report.  The importance of each category varies per person depending on the overall information in your credit report.  Therefore, for some people one factor may have a larger impact than it would for someone else with a much different credit history.  Furthermore, as the information in your credit report changes, so does the importance of any factor in determining your FICO/Beacon score.  With that said, it’s impossible to measure the exact impact of a single factor in how your credit score is calculated without looking at your entire report.  However, for general purposes the breakdowns are as follows.
Credit Score Calculation Property Guiding

1. Payment History: (35%) The first thing any lender wants to know is whether you’ve paid past credit accounts on time. This is one of the most important factors in a FICO/Beacon score.

2. Amounts Owed: (30%) Having credit accounts and owing money on them does not necessarily mean you are a high-risk borrower. In fact, using your credit lines helps build your credit. The key here is to make sure that you don’t max out your line of credit. For example, if you have a credit card with a $10,000 credit line, it is more favorable to owe only 25% of it rather than 80%.

3. Length of Credit History: (15%) In general, a longer credit history will increase your FICO/Beacon score. However, even people who haven’t been using credit long may have a high score, depending on how the rest of the credit report looks. This category takes into account the following.

• How long your credit accounts have been established, including the age of your oldest account, the age of your newest account and an average age of all your accounts.

• How long specific credit accounts have been established.

• How long it has been since you used certain accounts.

4. New Credit: (10%) Research shows that opening several credit accounts in a short period of time represents a greater risk. Especially for people who don’t have a long credit history.

5. Types of Credit Used: (10%) The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans.

Not sure who to call or where to start? Contact me today for a 100% free no-obligation loan inquiry analysis.

Matt Pell,  Loan Officer
Mortgage Warehouse, LLC
(239) 672-8502 – Direct Line
(239) 344-9223 – Fax
Company NMLS ID – 137154
Individual NMLS ID – 1018529
Better Business Bureau Rating = A+

Posted on April 22, 2013, in Finance and tagged , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. 1 Comment.

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