Your credit score is a three-digit number that is based on the information in your credit report. It is one of the factors that lenders use to determine your creditworthiness when you apply for a new credit account. A good credit score may make it possible to buy your dream home or open a business, while a bad score can present additional challenges. To build or maintain a credit rating that will allow you to reach your goals, it can be helpful to understand what affects your credit score. Here are some tips to help you learn how the scoring system works: 

The formula

Credit scores typically range from 300-850, specifically those based on the standard FICO® Score. Occasionally you will see industry-specific credit scores which can range from 250-900. Regardless if you are looking at a base FICO® Score or an industry specific score, the same rule applies, higher is better. There are five factors that determine your score:

  • 35% of your score is based on your payment history
  • 30% is based on current debts
  • 15% is determined by credit history
  • 10% is allotted to new credit applications
  • 10% is about types of current credit

 Tip 

Carrying high credit card balances can decrease your credit score.

Payment history

Skipping payments or paying your credit card late can negatively impact your credit score. Certain blemishes may remain on your credit report up to 7 years or more. Paying your bills on time, every time is a key way to help improve your credit score.

Current debts

Carrying high balances – relative to the total credit limit – on several cards could indicate a greater risk of default and bring down your score.

Credit history

This isn’t just impacted by how long you’ve had access to credit. It also takes trends in payment patterns and credit applications into account. So, while having a long history of good credit can boost your rating, a habit of missing payments or applying for new credit can dramatically decrease your score.

Types of current credit

Having a mix of credit products, such as a mortgage, a car loan, a home equity loan, and one or two credit cards is considered healthier than having multiple credit cards. Striking the right balance between types of credit can improve your credit score.

With this information, you can make informed choices that will help you make the most of your score. And the higher the score, the better your chance of getting the credit you need.

Q:
What has the most negative impact on my credit score?

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