General Information about Credit Scores

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General Information about Credit Scores

Credit scoring can be difficult to understand at times but try to remember that the score is only made up of five factors that are summarized below:

  1. 35% of the score is derived from payment history. Pay your bills on time and avoid judgments and tax liens.
  2. 30% of the score is derived from balances carried on accounts. The lower the better and remember that revolving credit card debt is the most significant factor in this area. It is always better to pay off credit cards before an auto or mortgage loan to get the biggest score increase.
  3. 15% of the score is derived from the average length of time you have had credit. The longer the length the better. Never close a credit card because you will hurt yourself in this area since your average account age will not increase in the future as quickly.
  4. 10% of the score is derived from the mixture of credit you have on your credit report. To maximize this area you want to have a mortgage, a car loan and a few credit cards.The magic number of credit cards to have is three but it is never a good idea to close credit cards to get down to that number because closing the card does more damage than the increase received by having fewer cards.
  5. 10% of the score is derived from the number of times you apply for credit. There are several types of inquiries but the only kind that hurts your credit score are the ones where you let someone pull your credit in order for you to get approved for a loan of some sort. Even asking for a credit limit increase is considered applying for a loan of some sort since you are trying to have the credit limit increased. Pulling your own credit report online is considered a personal inquiry and does not hurt your credit score.Anytime you receive a pre-approved credit offer in the mail it is considered what the industry calls a promotional inquiry and will not effect your score either. Lastly, a current creditor of yours looking at your credit report without you asking them to is considered an account review inquiry and has no effect on your credit score.


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Related Credit Links:

Understanding Your Credit
Things You Need to Know About Your Credit
Credit Repair – Strategies Revealed