What Goes Into Your Credit Score?

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Did you know that an unpaid library fine, parking ticket or medical bill may affect your credit score? And, while you may not have checked your score lately, chances are someone else has. 

That 3 digit number (ranging between 300 to 850) has a huge impact on your life because banks and lending companies use it to determine how much money you can borrow and how much interest you will pay. 

What Goes Into Your Credit Score

35 percent – your payment history:  
Do you regularly pay your bills on time? If not, late payments may be reported and drive down your score. Definitely try to pay on time if you can.

30 percent – your available credit:
You will have a better credit score if you only use 20% of your available credit lines rather than using 100%.   Don’t max out your credit cards or your score may suffer.

15 percent – the length of your credit history:
How long have you had each of your accounts?  It’s better to have fewer accounts and to keep these accounts for longer (assuming you’ve made timely payments).

10 percent – recent activity:  
What percentage of accounts and inquiries that have appeared on your report are recent as compared to the total number of accounts and inquiries.  Your score may drop if it looks like you just opened up many new accounts or if lots of companies recently made inquiries about your score. 

10 percent – types of credit you use:  
Having installment debt, like a mortgage, shows that you can manage a large loan. How you handle revolving debt, such as credit cards, tends to be more important because it’s more predictive of future behavior.

Once you know your number it’s easy to start taking steps to improve your score. By checking your credit activity regularly you can improve your rating by managing any negative items that need to be removed or fixed.  

Taking Charge of Your Credit Score

People are often amazed by how often creditors report negative payment history that is incorrect or a result of misunderstandings.  These can often be cleared up but only if you take action.  Unless you check your score, you may never know that these detrimental items are affecting your score.

The easiest and fastest way to check your credit score is online. Experian and Transunion are probably the two most well-known services. Below is a great graphic from the US government on checking your credit score. You can learn more on the USA.gov website.

View a larger version of the infographic.