By now, you know just how important your credit score is. This is what will determine whether or not you can purchase your dream home or can get the car that you have been hoping for. If you have poor credit, both of these things can be out of your reach. But you may be wondering just what your credit score is or how these numbers are calculated. This is an important thing to understand because your credit score is such a vital part of your everyday life. By understanding the numbers, you can help to keep these numbers higher.
Also referred to as your FICO score, there are 5 factors that can affect your credit score: payment history, amount you owe, length of your credit history, types of accounts that you have, and the recent credit history. About 35% of your credit score comes from your payment history. What this means is that it considers if you make your payments on time, how recently payments have been missed, how often you miss your payments, and how many days past due bills are. Another big chuck of this factor is how much debt you owe, which makes up about 30% of your credit score calculations. If you owe too much of balance or have maxed out cards, your credit will be negatively impacted by this.
About 15% of your credit score is the length of your credit history. Those who are just starting out in the “credit” world is going to have a lower credit score just because they do not have any credit history. If you have a long history where you have paid bills on time, you will have a better score. This can be contradictory to the many who believe that applying for credit cards and using them is bad. When done wisely, this can be a great way to build up you credit. The final 20% gets split between the types of credit accounts and your recent credit activity. If you have a diverse collection of credit card debt, mortgages, and installment loans this can improve your score. Recent credit activity is one that a lot of people are curious about. When you have an influx of credit checks due to applying for loans and credit cards, this can lower your score because it can be indicative of a money problem. However, paying off long-term loans can build up your credit. This is important to remember because if you are struggling with your credit, dedicating yourself to paying this debt on time can help improve your score.
The calculation of credit scores can be very complex, but it is important to sift through this information to know how you can improve your credit score. If you still need help, Advanced Credit Therapy is a reputable credit repair company that specializes in helping their clients find ways to improve their credit and build up their score that they can go on to enjoy their life. Here at ACT, we can educate you on how your credit score is calculated as well as offering valuable advice on how to fix your credit.