Understand Your Credit Score

1. Payment History (about 35% of a score is based on this category)

   The score takes into account:

   • Payment information on many types of accounts including credit cards, retail, installment loans, finance company and mortgage loans.
   • Public record and collection items, such as bankruptcies, judgments, law suits, liens, wage garnishment and collection items.
   • Details on late or missed payments and public record and collection items: specifically, how late they were, how much was owed, how recently they occurred and how many there are.
   • The number of accounts that show no late payments. A good track record on most credit accounts will increase the credit score.



2. Amounts Owed (about 30% of the score is based on this category)

   Having credit accounts and owing money on them does not mean you are a high-risk borrower with a low score. Owing a great deal of money on many accounts can indicate a person is overextended, and is more likely to make some payments late or not at all. Part of the science of scoring is determining how much is too much for a given credit profile.
   
   The score takes into account:

   • The amount owed on all accounts. Even if you pay off credit cards in full every month your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show in your credit report.
   • The amount owed on specified types of accounts. In addition to the overall amount owed, the score considers the amount owed on specific types of accounts, such as credit cards and installment loans.
   • Amount of balance owing. In some cases, having a very small balance without missing a payment shows you have managed credit responsibly, and may be slightly better than no balance at all. On the other hand, closing unused credit accounts that show zero balances and are in good standing will not generally raise your score.
   • How many accounts with balances owing. A large number of accounts with balances owing can indicate higher risk of over-extension.
   • How much of the total credit line is being used on credit cards and other “revolving credit” accounts. Someone closer to reaching their limit on many credit cards may have trouble making payments in the future.
   • The balance on installment loan accounts compared with the original loan amounts. Paying down installment loans is a good sign you are able and willing to manage and repay debt.



3. Length of Credit History (approximately 15% of a score is based on this category)

   In general, a longer credit history will increase the credit score. However, even those with short credit histories may receive high scores, depending on how the rest of the credit report looks.
   
   The score takes into account:

   • How long credit accounts have been established. The score considers the age of the oldest account as well as the average age of all accounts.
   • How long specific credit accounts have been established.
   • How long it has been since certain accounts have been used.



4. New Credit (approximately 10% of a score is based on this category)

   Opening several credit accounts in a short period of time represents a greater risk, especially for those who do not have a long established credit history. This also extends to requests for credit, as indicated by “inquiries” to the credit reporting agencies.
   
   The score takes into account:

   • How many new accounts have been opened.
   • How long it has been since those accounts were opened.
   • The number of recent requests for credit. This is indicated by the number of inquiries made to the credit reporting agencies. If a credit report is ordered from a credit reporting agency to check for accuracy, this will not impact the score. It also doesn’t count when a lender requests a credit report or score in order to make a “pre-approved” credit offer, or to review the account. Although these inquiries may show up on the credit report they are considered “soft” checks and will not negatively impact your credit report or score.
   • Length of time since credit report inquiries were made by lenders.
   • Whether you have a good recent credit history, following past payment problems.
   • Re-establishing credit and making payments on time after a period of late payment behavior will help to raise a score over time.



5. Types of Credit in Use (approximately 10% of a score is based on this category)

   The score will consider the mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open credit accounts you don’t intend to use.

   • The types of credit accounts you have, the number of each and the total number of accounts you have. For different credit profiles, factors of what may be deemed as too many accounts will vary.