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Get to Know Your Credit Score

How Are Credit Scores Calculated? 

When your order your credit report(s) from the three major credit bureaus (Equifax, Experian, and TransUnion) there will be a lot of information on  your file, however your credit score is not included in your credit report. That's because there are many different credit scoring models out there, and how each calculates your credit score can vary, but there are some common factors. Having a basic understanding of how the scoring model works can help you figure out what actions you can take to boost your score.

Here's how the calculations typically work: 

Payment History (35%): Paying creditors on time adds "positive" reports to your credit file. Your payment history is one of the most impactful components of your credit score.   

Balances (30%): Avoid carrying high balances, try to keep your credit utilization ratio (balances owed/available credit = utilization) below 30%. For example, if you have 2 credit cards, both with $500 of available credit, and you carry a balance of about $400 on one and $0 on the other your credit utilization ratio is 40% ($400/$1000). Utilization ratio is usually based on revolving credit like credit cards and lines of credit  

Length of Credit History (15%): How old are your credit accounts (credit card, line of credit, etc.) An older file generally provides more information and increases your score. For example a Visa card you have had for 12 years, will weigh more heavily than one you have had for 2 years

Credit Mix (10%): This simply refers to the different types of credit accounts you have. Lenders like to see that you can use all types of credit responsibly. Some of the different types of credit accounts you might find in your file would be:

  • Mortgage loans which are used to purchase a home 
  • Installment loans are loans that typically offer a fixed interest rate and payment amount, and as you make payments the balance decreases and you cannot draw additional funds on this type of loan. A car loan is a great example of a common type of installment loan. 
  • Revolving accounts are those accounts where you have a set credit limit, and you can use it and pay it back (or pay a portion of it) monthly. Typically the interest rates on these accounts vary. A credit card or a line of credit is a type of revolving credit. 
  • Other open accounts like a cell phone or utility bill 

New Credit (10%): How many new credit applications/accounts are in your file? If you are working on your score, take a pause from applying for, or opening, too many new credit lines in a short period. Newer accounts represent a greater risk to lenders since there is no payment history. 

Please note: ordering your own report will not impact your score.

Financial education content is intended for informational and educational purposes only and should not be construed as specific legal or tax advice

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