What is a Credit Score?
A credit score is a number that represents how likely a person is to meet their financial obligations. The score is a combination of how well the consumer has paid their bills in the past plus the level of debt.
Credit scores no longer only impact how many credit card offers you will get in the mail. Read more to learn about other parts of your life that are affected by credit in addition to loans & credit cards.
How is Your Credit Score Determined?
In the last year, the criteria for ‘excellent’ credit has gotten tougher. Since credit can now impact everything from getting a job to getting the lowest available rate on a mortgage, you need to do everything you can to maximize your credit score.
According to Stifel Bank & Trust, a credit score is typically determined by:
35% Payment History
- Improves credit scores – On-time payment of bills & responsible use of credit
- Lowers credit scores – Late payments, bankruptcies & derogatory credit
30% Amount Owed
- Improves credit scores – Low balances on credit cards & utilizing a low percentage of credit available
- Lowers credit scores – Maxing out credit cards & high loan-to-value ratios on mortgage
15% Length of Credit History
- Improves credit scores – Long-term responsible use of credit & credit lines open for years
- Lowers credit scores – No credit history & recent new credit accounts
10% New Credit
- Improves credit scores – Shop for credit within a 30 day period & keep long-term accounts active
- Lowers credit scores – Adding more credit cards or other revolving debt
10% Types of Credit Used
- Improves credit scores – Stable lifestyle accounts like mortgage or auto loans & mix of credit types
- Lowers credit scores – Non-reputable sources of credit & using credit to fund a lifestyle
You can check your credit report for free once a year to make sure that there are no errors in the reports. The reports won’t include your credit score, but for a small fee you can find out what score your financial habits have earned you.
Check back for a follow up post on how to improve your credit score.
