Credit scores are mysterious to many people, while we all understand the importance of having a high score, many people do not know the factors that are measured to determine a credit score.
Credit scores take into consideration a variety of statistics and then compiles them into a numerical rating that is meant to be an indicator of a consumer?s creditworthiness. The people who have the highest credit scores are the ones who are deemed to be the lowest credit risk for a lender. Scores at 700 and above are considered to be an excellent risk and scores below 600 are considered to be a bad credit risk.
Credit scores change all of the time. They change as your financial situation changes. A variety of factors affect your credit score and when these things change your credit score also changes. Credit scoring factors include credit usage, the type of credit a consumer has, recent credit inquiries and recent credit along with payment history.
Recently there have been some changes to credit scoring. A single late payment is not nearly as damaging as it has been in the past but a pattern of late payments is very detrimental. Payment history counts for about 35% of the score, with 30% being debt ratio, which is the amount of debt you have compared to the amount of credit that you have available, the length of your credit history counts for 15%, 10% is attributed to the type of credit you have.
Revolving credit from a retail establishment is considered a negative when it comes to your credit score while credit cards, bank loans, mortgages and car loans are considered beneficial. The last 10% of your credit score is the inquiries into your account.
Knowing these factors can help you to increase your credit score. For instance, because you know that 30% of your score is your debt ratio, you know that you can change that by either paying down your debt or even increasing your credit limit. You can also get rid of your retail credit cards, limit inquiries on your report and make sure that all your payments are made on time.
You can also increase your score by getting all erroneous information that is showing on your report removed. You will need to take some action by submitting disputes to the credit bureaus but you can repair your credit in time by taking these actions.
Once you realize the factors that affect your credit score you can do what is necessary to increase it. Start rebuilding new credit, fix the old credit and your score will go up.
