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A
credit score is a number that indicates the measure of
a consumer's credit risk at a particulare point in time.
Credit scores are calculated from information contained
in a consumer's credit report using a standardized formula.
The typical range for credit scores is between 375
and 900, with 375 indicating a poor credit risk, and 900
indicating a high liklihood that any credit extended will
be repaid as agreed, although there is a lot of disagreement
as to what the bottom and top numbers of that range truly
are. The average credit score in the US is around 680.
Your credit score takes all factors into consideration;
no one piece of information or one factor will determine
your score, although some factors are weighted more heavily
than others.
Payment History –
Your payment history determines
approximately 35% of your total credit score. This factor
looks at whether you pay your bills on time, or late.
If they’re late, how late are they? How often
do you pay late? How recent are your late payments?
How
many accounts show no late payments? Have you had
accounts turned over to collection or a judgment entered
against
you? Have you filed for Bankruptcy?
Amount Owed –
How much you currently owe determines
approximately 30% of your total credit score.
This factor looks at the total amount you owe, and
on what types
of accounts. How many accounts have balances?
How much of the total credit line is owed? How much
is owed now
in relation to how much you borrowed originally
(i.e. for auto loans)?
Length of Credit History –
The length of your credit
history determines approximately 15% of your total credit
score. In general, a longer credit history will increase
your score. This factor also looks at how long you’ve
had certain credit accounts, and how long it’s
been since you used certain accounts.
New Credit –
Approximately 10% of your score is
based on how many new accounts you’ve established.
This factor looks at how many new accounts you have,
how long it’s been since you opened them, how
many recent requests for credit you have made, and
the length
of time since credit report inquiries were made
by potential lenders. Rate shopping should not affect
this factor
because the inquiries will be made for a particular
type of credit during a short period of time.
Overall Credit Mix –
Approximately 10% of your
score is based on the overall mix of credit cares,
installment loans, mortgage loans, etc. The more
balanced the mix,
the more likely this factor is to improve your
overall score.
by Nance Kelly, About.com
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