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The Five Data Points That Make Up A Credit Score.

Article By : Patrick Mansfield | U.S. Consumer Finance
The Five Data Points That Make Up A Credit Score.
Your payment history determines 35% of your score:

A lender bases the decision of whether or not to loan money on the likelihood the borrower will be able to repay the loan. They only way to determine this is by using historical payment information. This is why your history of credit payments constitutes the largest part of your credit score.

Having a few late payments does not necessarily mean that your score will be terrible since other factors are weighed as well. By the same token, a perfect payment does not guarantee a perfect score.

The amount you already owe determines 30% of your score:

More specifically, it’s the amount you owe relative to the amount of credit you have. Owing large amounts of money doesn’t automatically qualify you as a high-risk borrower, but having already used a large portion of your available credit, does. If a person has borrowed more money than they can reasonably pay back, according to existing formulas, that person is more likely to miss payments.

The length of your credit history determines 15% of your score:

A longer credit history indicates a longer track record with managing money and debt. This number is determined by three factors of credit history:

The age of your oldest account, newest account and an average of all the accounts. The length of time specific credit accounts have been in your name.
The length of time that has passed since you used certain accounts. 

The types of credit you have determine 10% of your score:

A credit history is made up of credit cards, store cards, loans and other types of debt. Having a variety of these helps to boost your credit score, but it isn’t a large part of it. Opening additional accounts to have more variety in your credit pool is a bad idea because it shortens your credit history, a factor that has a larger impact on score.

Newly acquired credit determines 10% of your score:

This is a tricky number because opening many new accounts is a bad idea, but opening one good account will help your score. What determines a “good” account can be somewhat subjective, but generally they include mortgages, auto loans or other debt backed by collateral.

Checking your own credit report is a good idea and will not affect your credit score. Be sure to ask the credit reporting agency directly, or go through an authorized organization.

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