A Quick & Easy Guide to Understanding Credit Scores
The highest credit score is 850, which allows for the best interest rates and lower monthly payments.
What makes up the credit score?
- 35% = Payment history
- 30% = Available credit on revolving accounts (capacity)
- 15% = Length of credit
- 10% = Accumulation of debt
- 10% = Mix of credit
What type of actions lower the credit score?
- Late or missing payments
- Using the entire amount of available credit on credit cards
- Closing credit cards out (which decreases capacity)
- Excessively applying for credit
- Opening numerous accounts in a short period of time
- Having more revolving loans in relation to installment loans
What does not affect the credit score?
- Debt ratio
- Length of residence
- Length of employment
Approximate credit weight for each year:
- 40% = Current to 12 months
- 30% = 13-24 months
- 20% = 25-36 months
- 10% = 37+ months
How to improve the credit score:
- Lower credit card balances
- Do not close credit cards (which decreases capacity)
- Make payments on time
- Do not open numerous new credit card accounts
- Acquire a solid credit history with years of experience
- Move revolving debt into installment debt