How is a credit score calculated?Posted on June 2, 2009

Credit Score Breakdown:

1. Payment History (35%)
2. Amounts Owed (30%)
3. Length of Credit History (15%)
4. New Credit (10%)
5. Types of Credit Used (10%)

Payment History – 35%
The lender wants to find out if (and how promptly) you pay your bills. The score is affected by how many accounts have been paid late, how many were sent out for collection and if you have any bankruptcies. The more recent the negative activity, the worse it will be for your overall score.

A great way to establish good credit history going forward is to setup autopay or automatic withdraw. Most places that bill you offer services that will automatically pull the amount due from a credit card or bank account. Just remember that if you use a credit card for autopay that you also setup autopay on your credit card account too to make sure that nothing is being paid late.

Amounts Owed – 30%
If you currently own a home, car, and have credit cards, you most likely have some debt. Never max out credit cards or leave them open with no activity. The rule of thumb is to keep your card balances at 25 percent or less of their limits. A great way to see immediate raises in your credit score is to take care of credit cards first. Choose to pay down the credit card with the highest interest rate or the cards that you are late on payments. Another great financial tactic is to pay one extra house payment a year to your lender. On a typical 30 year loan, you will shave 8 years off the total and end up paying your home off in 22 rather than 30.

Length of Credit History – 15%
If you’ve just graduated from college, you most likely have a short credit history and are more risky to loan money. The longer you have established credit, the more likely a lender will loan you the money you need. This is based on open accounts and your credit score will not be able to take in account for anything that has been closed. Just remember that while you may have a longer credit history, if that history was full of negative things like late payments and collections it won’t matter how long of a credit history you have.

New Credit – 10%
Typically your score will go down for awhile after you have opened up a new line of credit. The major factor of this percentage comes from inquiries. There are two types of inquiries; soft and hard. A soft inquiry does not affect the credit score and usually involves a quick glance at your score. A hard inquiry does lower your credit score and typically is a result of actions initiated by you in an effort to obtain credit. If you open 2 new credit card accounts, take out a private bank loan, and attempt to buy a new car, your score will go down…the good thing is that your score will rebound from these inquiries.

Types of Credit Used – 10%
This category consists of 4 types of accounts:
1. Revolving (credit cards, lines of credit)
2. Loans
3. Public Records (bankruptcy, liens)
4. Collections
Some types of accounts can really help your score as long as you are paying them on time such as a student loan, car loan, mortgage, and credit cards. If you have ever had a public record such as a bankruptcy, tax lien, or a collection, your credit score is going to be negatively affected.

We can help you remove negative items from your credit report to increase your credit score. Call Trinity Credit Services at 1-888-NOW-REPAIR today for your FREE Credit Report Evaluation!