What’s In A Credit Score?

ROCKVILLE, Md. — Most people would like a higher credit score to be able qualify for lower interest rates. But without knowing how your score is calculated, how can you take the necessary actions to maximize your score to its fullest potential?

“Many people know that credit scores exist but really don’t know how they are used or calculated,” said Steve Rhode, president and co-founder of Myvesta, a nonprofit financial management organization. “Even though the exact formula for your credit score differs from person to person, we do know some of the factors that go into your score.”

According to Fair, Isaac, the company that developed the credit scoring models, the factors that go into a credit score are:

 Payment History –– This is the biggest factor in your credit score and accounts for about 35 percent of your score. If you have had any late payments or other problems, getting them behind you and letting time pass will help.

 Total Debts –– The total amount of debts you have counts for about 30 percent of your score. If you have debts other than your mortgage, such as a car or personal loan, a higher debt load could hold your score down.

 Credit History –– The length of your credit history counts for about 15 percent of your score. The longer your credit history, the better. So keep your oldest credit card accounts open.

 Types of Credit –– The variety of credit you have counts for about ten percent of your score. This includes credit cards, mortgages, installment loans, student loans, and any other types of credit.

 New Credit –– The amount of new credit you are applying for and/or receiving makes up about ten percent of your score.

It is important to note that this is not an exact formula and each percentage is an approximation. Each factor that is taken into account in determining your score is based on your individual credit report and could change over time.

“Solid financial management is what having a good credit score is really about,” Mr Rhode said. “If you don’t have the time, skills, or energy to manage your day-to-day finances diligently, enlist the help of a service like Myvesta’s AllPaid program to get your credit score where it should be.”

For more information on credit scores, read the Myvesta publication Credit Scoring: How it Works and How You Can Improve Your Score. It can be downloaded free online at Myvesta.org, or for a printed copy send $5, payable to Myvesta, to Credit Scoring Publication, PO Box 8587, Gaithersburg, MD 20898-8587.