Payment history (35%)
Payment history is the most important part of your credit score, which amounts to 35%. Good payment track record that shows you always paying your bills on time will contribute to a perfect credit score, while skipping one-time payment can dent an all clean record.
The actual effect late payment will have on your credit score to large extend will depend on how often it happened. A credit score reporting agency Equifax said the later the payment, the severe the harm it does to your credit score.
”Your current credit situation also plays a role. For example, if a person with a 780 FICO score and no history of late payments became 30 days late on a payment, they could experience a drop of 90 to 110 points. However, if that person’s current score were 680 and they’d missed a couple of payments in the past, they could expect to lose just 60 to 80 points after another 30-day late payment,” report.
Amounts owed (30%)
Next credit score factor to consider is the amount you owe compare to the total amount of credit available to you, which could be refer to your credit utilization. The more you use your available credit, the more of a risk you are to lenders, because it will appear to them like you’re completely relying on credit for survival.
”Though there’s no perfect credit utilization ratio, most experts agree that keeping it under 30% is a good guideline. But the less you use, the better. Those who have a credit score of 800 use about 7% of their available credit, on average. Installment loans, such as car loans, student loans and mortgages, also tend to be weighted less heavily than revolving credit, such as credit cards,” report.
Length of credit history (15%)
Your credit score also considers how long you’ve been relying on credit to get things done. Lenders love to see your record reflect that you borrow money only when it’s most necessary, so longer credit histories are viewed more favorably.
”But it’s not just how long you’ve been using credit in general that matters. According to FICO, your credit score takes into account the age of your oldest account, the age of your newest account and the average age of all your accounts, as well as how long specific accounts have existed and how long it’s been since you used them. So, for example, even if you got your first credit card 20 years ago, opening a new one could bring your score down a bit since it lowers the average age of your credit,” report
Credit mix (10%)
For a sound credit score record, you need a diverse mix of account types. For example, if you have ever used only credit cards, you will be at a disadvantage compared to someone who paid off a car loan and has a mortgage.
”FICO notes that you don’t need to have one of every type of account, especially if that means borrowing money you don’t need. What’s more important is having a mix of revolving and installment credit. The right number of accounts to have is dependent on your personal situation,” report
New credit (10%)
You will be sending a red signal to lenders if you open several account within a short period of time, mostly if you have a short credit history. Doing so would make it look as though you’re struggling financially, and then it will reflect in about 10% of your total credit score.
”That goes for applications that are rejected, not just the accounts you’re approved for. A credit inquiry occurs every time a lender or other entity pulls a copy of your credit report for review. These inquiries stay on your credit for two years and can ding your score. However, FICO only considers inquiries from the last 12 months. Plus, checking your own credit doesn’t count against you,” report.