You may be wondering what creditors take into account when determining your credit score. There are five factors involved in calculating your credit score, each varying in importance and value to credit scoring models. Here are the five more common criteria of what determines your credit score:
1. Payment History (35%)
The most important factor in determining your credit score is whether you pay your bills on time. Credit scoring models examine all the credit you’ve already been extended, including credit cards, auto loans, installment loans and any other line of credit. Any late or missed payments are noted and may negatively impact your credit score.
2. Debt/Amounts Owed (30%)
The second most important determining factor is the balance-to-limit ratio on your credit cards. Models will examine how much of the total credit line you’re using on all of your credit cards. In general, you should try to keep your utilization rate below 30% to avoid lowering your credit score. Keeping your balance below 108 will help you achieve a higher score.
3. Age of Credit History (15%)
The credit score calculation also reviews the age of every account you hold. Scoring models favor users who show they’ve been able to handle several credit accounts over time without penalties, late fees or closures.
4. New Credit/Inquiries (10%)
Your credit score will also reflect how much credit you’ve received or applied for recently. Any credit you’ve applied for within the past three to six months or new inquiries from creditors are recorded and used during calculations. The scoring model doesn’t consider requests a creditor has made to review your credit file or score to build a preapproved credit offer. Nor does it account for any personal requests you’ve made for a copy of your credit history.
5. A mix of Accounts/Types of Credit (10%)
Creditors like to see you’ve been able to balance multiple tradelines of different types. The scoring algorithm examines the types of credit accounts you have, including revolving debt and installment loans.
The above are the most common factors determining your Credit Score. Be aware that your Credit Score is one of a number factors we consider when determining your home mortgage loan. The best way to know if you qualify, and for how much, would be to discuss your situation with one of our home loan experts. Contact an Assurance Financial Loan Officer now!
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