Your credit score is a three-digit number that is used to predict how you will pay your bills. The score ranges from
300-850 and is calculated using your credit history information from your credit reports.
When you apply for credit, the creditor or lender uses your credit score to quickly make a decision
about wether or not to loan you money. This same decision can very well be made by simply viewing your credit report, but
the credit score makes decision-making faster and easier.
While there are several different
versions of the credit score, the most commonly used version is the FICO score Developed by the Fair Isaac Company, the FICO score is used by many creditors
and lenders to decide whether or not to extend credit to you.
Because some parts of your
bill-paying history are more important than others, different pieces of your credit history are given different weights in
calculating your credit score. Even though the specific equation for coming up with your credit score is proprietary information
owned by Fair Isaac, we do know what information is used to calculate your score.
Payment
history is 35%
Lenders are most concerned about whether or not you pay your bills. The best
indictor of this is how you’ve paid your bills in the past. late payments, collections,
and bankruptcys all affect the payment history of your credit score. More recent delinquencies negativly
effect your credit score more than older accounts. Debt level is 30%
The amount of debt you have in comparison to your credit limits is refered to credit utilization or your debt
to credit ratio. The higher your credit utilization – the closer you are to your limits
– the lower your credit score will be. Keep your credit card balances at or below 30% of your credit
limit. Length of credit history 15%
Having
a longer credit history is favorable because it gives more information about your spending habits. It’s good to leave
open the accounts that you’ve had for a long time. Inquiries are 10%
Each time you apply for credit, an inquiry
is added to your credit report. Too many applications for credit can mean that you are taking on a lot of debt or that you
are in some kind of financial trouble. While inquiries can remain on your credit report for two years, your credit score calculation
only considers those made within a year. Mix of credit is 10%
Having
different kinds of accounts is favorable because it shows that you have experience managing a mix of credit. 
