13 Feb What Makes Up a Credit Score?
With a simple Google search of the words “credit score” you can come across 790.000.000 results within 0.70 seconds! Ads and posts for free consultations, definitions of the term, opinions, problems and solutions, explanatory articles, you can find anything that you possibly want. That’s a lot of information to handle and you may get confused. One of the common queries on the search bar are about what makes up a credit score. How much of this, how many of that etc. In this article we’ll break down the question in simple words a la Baby Boomers Financial. Because if you’re looking for a simplified explanation, then you’re reading the right article!
What Is a Credit Score?
Simply put, credit score or credit rating, is a calculation of your probability to pay your credit back to lenders and creditors. This number is the result of different factors regarding you overall credit and payment habits. Let’s see which these factors are, one-by-one.
What Makes Up a Credit Score?
There are five critical categories that assemble your personal credit score. The scoring weight of each one varies depending on its importance. But two of them are on the top and make up more than half of your credit score.
Payment History (35%)
The primary purpose of a credit score is to give an idea of your credibility and payment habits. Lenders and creditors want to see that you’re able and willing to pay them back on time. So, it’s not to wonder why your payment history makes up approximately the 35% of your overall credit score.
Amounts Owed (30%)
The second major category is of course the amounts owed. The amount of your total debt scores about 30% and together with payment history they make up the 65% of your overall score. The reason is logical, because no one will approve a loan to someone that already has too many accounts to pay back.
Length of Credit History (15%)
Its share may only be 15% on the credit pie, but the length of your credit history could determine whether your loan is accepted or not. Remember that the middle factor works the same way with the label of a fine wine, the older, the better!
Types of Credit (10%)
Approximately 10% is dedicated to a mix of the different types of credit accounts that you have. These can be individual credit card, mortgages, personal loans etc.
New Credit (10%)
The last factor that calculates your credit score is based on your new credit activities. These may include recently opened accounts, and new credit inquiries.
A good credit score, can give you so many financial opportunities ranging from an apartment rental to better interest rates. So, if you want to come up with a good one, you’ll first have to understand it. Hopefully if you started reading questioning what makes up a credit score, you got your answer by now. Need help to improve or repair your credit score? Baby Boomers Financial is a reputable and effective credit repair company. Don’t hesitate to contact us for any inquiry, or even a free credit review!