A credit score is a numeric expression that helps lenders estimate the risk of extending credit or loaning money to people. The most common credit score is the FICO score, a measurement based on five factors that affect the credit score:

Payment History - 35%
A history of on-time payments helps improve your credit score. Payment history includes information on various account types including credit cards, retail accounts and installment loans, as well as any adverse public records for events such as liens, foreclosures and bankruptcies. The time since the last negative event and the frequency of missed payments affect the credit score deduction. For example, someone who missed one credit card payment five years ago will be seen as less of a risk than a person who misses several payments each year.

How Much You Owe and How Much Credit You Use - 30%
FICO scores consider how much is owed on all accounts, how many account have balances, and how much available credit is being used. The more a person owes relative to their credit limit, the lower their credit score will be. You will be seen as more of a risk if you are already maxing out your lines of credit.

Length of Your Credit History - 15%
Even though age is not considered in a FICO score, a longer credit history will improve your score. This is a disadvantage for young people: a younger person will generally have a lower credit score that an older person when all other factors are the same. Despite this, a person with a short credit history can still get a high credit score if he or she exhibits dependable credit management.

New Lines of Credit - 10%
Recent and/or frequent applications for new credit can negatively impact your credit score. Each time a lender checks your credit history, your score can drop by a few points. Credit rating agencies consider the number of recently opened accounts (and the percentage of new accounts relative to the total number of accounts), the number of recent credit inquiries (not including consumer and promotional inquiries), and how long it has been since new accounts have been opened or credit inquiries have been made. FICO recommends staying focused while shopping for loans (such as for mortgages and automobiles): keeping the search under 30 days can help you avoid credit score deductions.

Other Factors - 10%
Having a variety of credit types can help improve your credit score. If you have had just one type of credit – a credit card, for example – your score will be lower than if you have had a variety of credit types (such as credit cards, retail cards, auto loans, mortgages, etc.). A mix of credit types is expected from people with longer credit histories, and helps show you are an experienced borrower.

SEE: Credit And Debt Management

  1. Will having several credit cards hurt my credit score?

    The manner in which you use your credit cards may affect your credit score more than the number of credit cards you own will. Read Answer >>
  2. What's the difference between credit score and credit history?

    Check out the differences between credit score and credit history, and learn how your credit history is used to create your ... Read Answer >>
  3. How does the number of credit card accounts I have affect my credit score?

    Your credit score, which is also referred to as your FICO score, is a measure that creditors use to assess your potential ... Read Answer >>
  4. Why don't I have a credit score?

    Learn about some of the reasons why you might not have a credit score, and find out how you can build a good credit score ... Read Answer >>
  5. How is my credit score calculated?

    The credit score, commonly referred to as a FICO score, is a proprietary tool created by the Fair Isaac Corporation. This ... Read Answer >>
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