We’ve all seen the three-digit number and have probably wondered… how is my credit score calculated? Although it may seem simple, there are many factors that go into it and it can vary based on who the lender is and which credit bureau is being utilized. In this blog, we will explain the five factors that could be impacting your credit score.
1. Types of Accounts
The types of accounts you have can impact your credit score. If you have credit cards, student loans, automobile loans, and mortgages on your account that you have paid for, it shows that you are able to manage various kinds of accounts. Because of this, it gives you more credibility if you want to get a certain type of loan or want to open another credit card. Although it may look better to have various types of accounts paid for, it is not essential and it only makes up about 10% of your credit score.
2. Credit Applications
How many times have you applied for credit cards? The number of times you apply for credit cards or loans, gives lenders the ability to see how frequently you are looking for more credit. If they see you are constantly applying for credit cards and loans, it does not look very good as it may be an indication you need more money than you have.
Every time you apply for a credit card or get your credit score pulled, it gets documented no matter if it is a hard or a soft inquiry. A hard inquiry is when you apply for some form of credit from a lender while a soft inquiry occurs when your individual credit is pulled for different reasons than determining your eligibility after a credit application.
Just like the types of accounts, this will also affect your score by 10%.
3. Debt
How much debt are you carrying on a day to day basis? If you have a small amount of debt, it will not affect your score very much, but if you have a lot of debt, it will impact your score significantly. As a rule of thumb, keep the amount of debt you owe below 30% of available credit. The amount of debt that you have impacts your credit score by 30%.
4. Payment History
Have you been diligent about paying your bills on time? If you haven’t, it is important to start doing so. This is the biggest factor that affects your credit score. This alone will impact your score by 35% and it helps lenders determine if you are a risk to them. If you’ve missed a payment, it will have a negative impact, but it will fade with time as long as you don’t make any other late payments in the future.
5. Age of Credit
How long have you had credit? This is one factor that you may not be able to control because you have little influence over time. This factor takes into account how long you have had credit and how diligent you have been with keeping up with it over the years. The longer you have credit, the better. Make sure you don’t close your longest-held accounts unless absolutely necessary. The age of your credit makes up about 15% of your credit score.
Although it may be difficult for you to calculate your credit score, we wanted to be able to shed more light on the process and what areas you should focus on to improve it. There are always free credit score options that can assist you if you need it. If you have any questions, feel free to speak with one of our Member Advisors, stop by our Montebello or Cerritos branch today, visit us online at caminofcu.org or give us a call at 800-835-3400.