What determines your credit score?

Your credit score stays with you forever and helps lending institutions determine how much money they should borrow you, but how is it determined?

There are several areas credit bureaus look at when determining your score. They don’t randomly assign a three digit number between 350-850, so it’s a good idea to know what goes into your score to aid you in looking for ways to help it improve or keep it where it is.

Here are five elements the bureaus pay attention to when putting together your score:

Payment history (35%):

This is the biggest indicator of your credit score. All on-time payments work in your favor, while any late payments will put a hit on your score. Past payment behavior is a big indicator of future payment habits.

Credit utilization (30%)

Are you maxing out your credit cards or do you try to leave yourself some room? Credit bureaus like to see credit card usage less than 40% of your limit. The lower the number, the better impact on your score.

Length of credit history (15%)

The longer you have had credit, the better your score is likely to be. The main things bureaus pay attention to is the age of your oldest accounts, how many new accounts you have and how frequently you are using your credit.

New credit (10%)

If you’re opening up multiple lines of credit in a short amount of time, it will harm your credit and throws up a red flag in the eyes of the credit bureaus. This becomes more true the shorter you credit history is.

Types of credit (10%)

While it’s hard to define, credit bureaus are looking for a pattern of how you pay back different types of debt. If all you have are student loans, it might be a good idea to open up a credit card or two to give you a little more variety.

These tips should give you a good idea of how to keep your credit score up, or ways to look to improve your credit if it has dropped. All in all, the best way to ensure a good credit score is to rarely have your credit pulled and always make your payments on time!

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John Flemmer

Mortgage Loan Officer | NMLS #1449163