What makes up a credit score?
Your credit score plays a major factor in most of life's big moments. Buying a home or car, getting married, going to college and starting a family all have major financial implications. A great credit score allows you to qualify for lower interest rates and obtain financing for your needs.
Understanding what makes up a credit score is an excellent start to getting a healthy credit score and maintaining it. There are 5 key factors that compromise a credit score.
Payment History - 35%
This is the biggest factor for good reason. Payment history shows how you have performed in the past with respect to paying your bills. The more important the type of credit, the more weight it will carry.
Capacity - 30%
Your capacity is determined by the amount of credit you have available vs. the amount you are currently using. Keeping this number low will help with about 1/3 of your score determination.
Length - 15%
The amount of time your accounts have been open plays a role in your credit score. This is why it is difficult for someone with little or no credit history to have a high score as it takes times to build.
New Credit - 10%
The amount of new credit on your account can impact a score as it could be a sign of a major event or a financial hardship causing a need for more credit.
Type of Credit - 10%
The type of credit on an account is important in that all types of credit are not the same. A mortgage requires different handling than someone with a wallet full of store cards.
While the exact formula is not known, being smart about your credit and maximizing your usage within these parameters will surely lead you on the path to a credit score that makes you happy.