What Factors Into Your Credit Score?
Trying to understand all of the things included in your credit score can be confusing. Still, it is important to know what factors into your credit score from the start.
What factors into your credit score, exactly? Interestingly, the precise formula for calculating a credit score is kept a large secret. However, there are five things that seem to effect a person’s credit score directly, and they are: payment history; amounts owed; length of credit history; new credit; and the types of credit used. Though each of these things will impact your credit score, they are not all created equal.
Let’s start with your payment history. This portion of your credit score accounts for approximately 35% of your overall credit. Your payment history is determined by the amount of time it takes you to pay off any bills. For example, it is important to pay all of your bills on time every month. Also, the amount of time that it takes you to pay a bill will also factor into your overall score. If you choose to pay your bills on time, or beforehand, your credit score will be adjusted due to this prompt payment.
Another key portion of your credit rating depends upon the amount of money that you owe. This part of your credit report totals up to 30% of your overall credit. It is important that you never spend more money than you actually have. If you owe a lot more money that you can pay for, your credit report will be negatively effected. Make sure to pay a large chunk of all that you owe each month, and try to eliminate any massive amount of debt. If you want to know what factors into your credit score, simply take a good look at all those bills piling up.
The remaining three sections of your credit report (length of credit history; new credit, and types of credit) account for smaller pieces of your credit report, but they should not be ignored. Generally, it is far better to acquire a bank credit card rather than a store credit card due to the overall limit (store credit cards can be a lot smaller), but only if you can pay off the card in whole. Additionally, make sure that any new credit is reported entirely (not all companies report on time payments), and try and maintain a steady credit history for a long period of time.
Now that you know what factors into your credit score, you can begin to place your credit upon the right path. Try to pay as much as you can towards each bill every month (never pay only the minimum amount), and always keep your credit on your mind when you decide to spend. If you can, set aside money every month in order to cover your purchases. Your credit is very important, so make sure that it is not neglected.