What Makes Up Your Credit Score?

The algorithm for calculating your Equifax / Transunion Credit Score can be rather mind boggling.  However, it’s actually quite simple what impacts your beacon, and why.  Below are the 5 key components of what makes up your credit score:

35%

Payment History

This makes up about 35% of your score, it’s crucial to pay your bills on time.  Even if you miss $5 dollar payment on a credit card, it can produce the same negative effect as missing a $500 payment!  Don’t skip minimum payment requirements.  Always be aware of whom you owe money to—even if it’s just a parking ticket; left too long and this could go to collections which will damage your score immensely!

30%

Utilization Ratio

This is your level of indebtedness. This is how much of your total available credit you’re using. Try to keep your balance below 35% of your credit limit, and don’t ever go over 70%, even if you pay it off every month.  For example, if you have a $10,000 Credit Card, don’t allow the limit to exceed $7,000.  It is better to obtain a seperate credit card or increase your limit, then to go beyond the 70% utilization ratio.

15%

Length of Credit

The longer you have an account open, the better. Think of it as a good track record. It shows you’re capable of managing credit.

10%

Types of Credit

It’s good to have a mix of different types of credit to show that you can manage your financials well.  But use caution as to what types of credit you have.

For example:  A mortgage reporting on your credit history will produce a strong beacon score vs. a payday loan which can show you are a higher risk borrower.

General rule of thumb: Have at least 2 credit cards, a line of credit, and a mortgage reporting for at least 2 years plus and you will be a beacon stud!

Did you know?:  95% of banks require you to have at least 2 credit cards for a minimum of 2 years if you wish to qualify for “A” Credit rates!

10%

Inquiries

These happen every time you agree to look to obtain credit.  But there is a big difference between a Hard Inquiry and a Soft Inquiry.

A hard inquiry happen’s when you open a bank account, a credit card, an auto loan etc.

A soft inquiry is when you search your credit history personally, or I help you obtain an report without “inquiring for credit”.

Note:  Equifax and Transunion view credit inquiries for different types of credit within the similar time frame as a major red flag that will impact your score.  If you are shopping for a mortgage, don’t shop for a Hot Tub or Auto Loan during this period, it could affect your approval!

credit score