Credit Score Mystery Explained

28 Oct Credit Score Mystery Explained

The most common question consumers are asking about credit scores – How does a score get calculated?

There are 5 main factors:

1. Payment History – equals about 35% of the overall score. Any late payments in the last 12 to 24 months have the biggest impact. A 30 day late today will have greater negative impact than a bankruptcy 5 years ago with clean credit since.

2. Credit Utilization – equals about 30% of the overall score. Keeping low balances on multiple cards is better than high balances on just a few cards, however balances should be kept at about 30% or less of the actual credit limit.

3. Length of Credit History – equals about 15% of the overall score. Accounts that have been open for long periods of time and have no history of late payments provide the highest score. Opening new accounts and closing seasoned accounts do impact ones score. When people have no established credit, they generally need 1 or 2 open and active accounts that are in good standing for a minimum of 6 months to start building credit and receiving good scores.

4.Types of Credit in Use – equals about 10% of the overall score. Mortgage loans are considered good debt and their history is strongest when applying towards consumer scores. Generally a mix of different types of accounts is better than a concentration of credit cards only.

5. Inquiries – equals about 10% of the overall score. Inquiries on mortgage and auto loans are considered special and have the least impact on someone’s overall score. However, if several credit cards are applied for in a short period of time, that may impact the score and cause it to drop.


All information in this post was provided by The Federal Trade Commission. For further information please consult their website The Federal Trade Commission.


Katja Hom
Katja Hom
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