Your Credit Score - Part 3: The Five Factors Determining Your Credit Score
Credit scores are comprised of five factors. Points are awarded for each component, and a high score is most favorable. The factors are listed below in order of importance.
1. PAYMENT HISTORY - 35% IMPACT
Paying debt on time and in full has the greatest positive impact on your credit score. Late payments, judgments and charge-offs all have a negative impact. Missing a high payment will have a more severe impact than missing a low payment, and delinquencies that have occurred in the last two years carry more weight than older items.
2. OUTSTANDING CREDIT BALANCES - 30% IMPACT
This factor marks the ratio between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit.
3. CREDIT HISTORY - 15% IMPACT
This portion of the credit score indicates the length of time since a particular credit line was established. A seasoned borrower will always be stronger in this area.
4. TYPE OF CREDIT - 10% IMPACT
A mix of auto loans, credit cards, and mortgages is more positive than a concentration of debt from credit cards only.
5. INQUIRIES - 10% IMPACT
This percentage of the credit score seems to produce the most confusion. It simply quantifies the number of inquiries made on a consumer's credit within a 6 month period. Each hard inquiry can cost from 2 to 25 points on a credit score, but the maximum number of inquiries that will reduce the score is ten. In other words, eleven or more inquiries within a 6 month period will have no further impact on the borrower's credit score. Note that if you run a credit report on yourself, it will have no affect on your score. Please note that if you are applying for an auto or mortgage loan multiple lenders may be pulling their own reports. To compensate for this, the score counts multiple auto or mortgage inquiries in any 14 day period as just one inquiry. Additionally, the score ignores all auto and mortgage inquiries made in the 30 days prior to scoring. This adjustment keeps consumers from being penalized for shopping for the best loan terms.
It is important to remember that the credit score is a computerized calculation. Personal factors are not taken into consideration when a credit report is generated. It is merely a snapshot of today's credit profile for any given borrower, and it can fluctuate dramatically within the course of a week.
-Bill Burniece
Credit scores are comprised of five factors. Points are awarded for each component, and a high score is most favorable. The factors are listed below in order of importance.
1. PAYMENT HISTORY - 35% IMPACT
Paying debt on time and in full has the greatest positive impact on your credit score. Late payments, judgments and charge-offs all have a negative impact. Missing a high payment will have a more severe impact than missing a low payment, and delinquencies that have occurred in the last two years carry more weight than older items.
2. OUTSTANDING CREDIT BALANCES - 30% IMPACT
This factor marks the ratio between the outstanding balance and available credit. Ideally, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit.
3. CREDIT HISTORY - 15% IMPACT
This portion of the credit score indicates the length of time since a particular credit line was established. A seasoned borrower will always be stronger in this area.
4. TYPE OF CREDIT - 10% IMPACT
A mix of auto loans, credit cards, and mortgages is more positive than a concentration of debt from credit cards only.
5. INQUIRIES - 10% IMPACT
This percentage of the credit score seems to produce the most confusion. It simply quantifies the number of inquiries made on a consumer's credit within a 6 month period. Each hard inquiry can cost from 2 to 25 points on a credit score, but the maximum number of inquiries that will reduce the score is ten. In other words, eleven or more inquiries within a 6 month period will have no further impact on the borrower's credit score. Note that if you run a credit report on yourself, it will have no affect on your score. Please note that if you are applying for an auto or mortgage loan multiple lenders may be pulling their own reports. To compensate for this, the score counts multiple auto or mortgage inquiries in any 14 day period as just one inquiry. Additionally, the score ignores all auto and mortgage inquiries made in the 30 days prior to scoring. This adjustment keeps consumers from being penalized for shopping for the best loan terms.
It is important to remember that the credit score is a computerized calculation. Personal factors are not taken into consideration when a credit report is generated. It is merely a snapshot of today's credit profile for any given borrower, and it can fluctuate dramatically within the course of a week.
-Bill Burniece
posted by Bill | 12:23 PM
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