Credit Scoring
Learn what your credit score is and how to improve it.
Everyone has a credit score: a number intended to rate the quality of their credit (the higher your score, the better your credit). Credit scores are used by credit card companies, home equity lenders, auto loan lenders, and finance companies when you apply for credit or a loan. A low score can affect your ability to get a credit card or loan or convince lenders to charge you higher interest.
Factors Affecting Your Credit Score
Credit scores are produced with a computer model, usually created by Fair Isaac ("FICO"). Although FICO won't reveal exactly how it determines a credit score, it considers the following factors (the approximate weight it assigns to each factor is in parentheses):
Payment history (35%). Your score is negatively affected if you have paid bills late, had an account sent to collection, or declared bankruptcy. The more recent the problem, the lower your score.
Outstanding debt (30%). If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score. Also, if you carry a balance on a number of accounts, that might lower your score because it looks like you're overextended.
Length of your credit history (15%). The longer your accounts have been open, the better.
New credit (10%). If you have recently applied for many new accounts, that may negatively affect your score. (Promotional inquiries don't count.)
Types of credit in use (10%). FICO says it's looking for a "healthy mix" of different types of credit, both revolving and installment accounts. This factor is important only if there isn't a lot of other information to use in determining your score.
Although this is a good guide as to what credit scoring companies deem important, keep in mind that some companies may consider different factors.
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