Your credit score is used by lenders as one of the factors in determining the risk in lending to you as a borrower. Your credit score can be used for a mortgage, loan or credit card application as well as many other scenarios.  Credit scores are designed to predict the likelihood that individuals will pay their bills.

The main factors involved in calculating your credit score are as follows:

– Your payment history

– Your used credit versus your available credit

– The length of your credit history

– Public records such as collections or bankruptcies

– Number of inquiries into your credit file

If you look at your credit score from Equifax and TransUnion you may see different scores. Each credit bureau has different scores and lenders typically request only one of them when making decisions.

There are many different scoring models and here is a general breakdown of the factors the models consider:

Payment history: 35% of your credit score

Your credit history includes information about how you have repaid the credit you have including credit cards, lines of credit, retail department store accounts, installment loans, auto loans, student loans, finance company accounts, home equity loans and mortgages.

This category shows the payments you’ve made on time as well as late or missed payments, public record items and collection information. Credit scoring models look at how late your payments were, how much was owed, and how recently and how often you missed a payment. Your credit history will also detail how many of your credit accounts are delinquent in relation to all of your accounts on file. For example, if you have 10 credit accounts and you have late payments in 5 of those accounts that may impact your credit score.

Used credit versus available credit: 30% of your credit score

Another key part of your credit score is how much of the total available credit is being used on your credit cards as well as any other revolving lines of credit. A revolving line of credit is a type of loan that allows you to borrow, repay, and then reuse the credit line up to its available limit.

Also included in this factor is the total line of credit or credit limit for your accounts.

Credit history: 15% of your credit score

This section of your credit file details how long your credit accounts have been in existence. The credit score calculation typically includes both how long your oldest and most recent accounts have been open. In general, creditors like to see that you’ve been able to properly handle credit accounts over a period of time.

Public Records: 10% of your credit score

Those who have a prior history of bankruptcy, collections or other derogatory public records may be considered risky. The presence of these events may have a significant negative impact on a credit score.

Inquiries: 10% of your credit score

When a lender accesses your credit file to determine credit worthiness this is known as a credit inquiry.  The only inquiries which may impact a credit score are those related to active credit seeking. This is known as a “hard pull” or “hard hit” on your credit file. You are allowed to have inquiries as a normal part of applying for credit however too many inquiries may indicate financial distress. Of course not every inquiry is a sign of financial difficulty and only a number of recent inquiries in combination with other warning signals on the credit file should lead to a significant decline in a credit score.

Your credit score does not take into account requests a creditor has made for your credit file or credit score in order to make a pre-approved credit offer, or to review your account with them, nor does it take into account your own request for a copy of your credit history. These are some examples of soft inquiries of your credit.

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