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    What Determines Your Credit Score?

What Determines Your Credit Score?


Your credit score is incredibly important to your financial future, but have you ever wondered how it’s determined? As it turns out, there are five primary factors that influence your credit score. Considering knowledge is power, it can never hurt to know what determines your credit score.

 

Payment History

Paying your bills on time plays a major role in your credit score. Coming in at 35%, your payment history makes up the largest single chunk of your score. The most important part of a credit score, payment history is composed of your history in paying off past credit accounts. A history marred by late payments or defaults will hit your credit score hard.

Amounts Owed

Having credit accounts with balances doesn’t necessarily mean you’re a high-risk borrower. Part of your credit score is composed of how much you owe on current accounts. Owning excessive amounts could indicate that you’re a higher risk for a lender. For best results when submitting applications, try to keep your amounts owed fairly low.

Length of Credit History

One of the factors that can affect your credit score positively is how long you’ve had a credit account. The length of your credit history will ultimately increase your credit score, depending on how the other factors look, of course. This factor takes into account your oldest account, newest account, and average age of all accounts in your name.

Credit Mix

The total mix of your credit accounts could affect your score in either direction. Having too many credit, retail, loan, and finance accounts could hurt, but having a few that you use regularly won’t adversely affect your credit score.

New Credit

Opening too many new credit accounts will dramatically affect your credit score. Lenders tend to view opening new accounts in a short amount of as an indicator of a greater risk. While opening a retail account may reflect well on your credit mix, it could negatively affect your score when it comes to new credit.

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