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Elements That Determine Your Credit Score

When it comes to computing credit scores, you need to understand that there are 5 elements that determine your credit score.  These elements come from the information in your credit report, and points are awarded for each factor.   

The total points predicts how likely you are to repay your debts in a timely manner, which is a powerful indicator of credit-worthiness to lenders.  The total amount of points that you can have on your credit score can range from 300 to 850, depending on the source.

Now let's take a look at the 5 elements that determine your credit score and how points are calculated.  The most important factor in computing your credit score is your payment history, followed by amounts owed, length of credit, types of credit, and finally new credit accounts.  You can find a more detailed description of each of these factors below:

Payment History determines 35% of your credit score, with the most emphasis given to recent activity.  Your payment history includes:

  • Any bankruptcies, judgments, liens, collections, suits, and wage garnishment
  • Types of credit and payment information
  • Number of accounts paid as agreed
  • Late payment information - number of past due items, how long the items have been past due

Amounts Owed accounts for 30% of your credit score, and includes such things as:

  • Total amount owed to all creditors
  • Amount owed on specific types of accounts (credit cards, installments, etc)
  • How many accounts show balances
  • How much available credit you have
  • How much you have paid down on installment loans

Length of Credit makes up about 15% of a person's credit score, with information about:

  • When your credit file was established
  • How long individual credit accounts have been established
  • Age of the oldest account, and the average age of all accounts
  • How long it has been since certain accounts have been used

New Credit Accounts determine about 10% of your credit score, with the relevant information being:

  • How many of your accounts are new
  • The ratio of new accounts to established accounts
  • How long has it been since a new credit account was established
  • How many credit inquiries have been made on your credit file
  • How long has it been since these inquiries were made

Types of Credit in Use determines approximately 10% of your credit score.  A mixture of account types generally scores better than reports with only revolving accounts, such as credit cards.  Types of credit include:

  • Credit cards
  • installment loans
  • mortgage loans
  • finance company accounts retail accounts

As the 5 elements that determine your credit score change, your credit score will fluctuate accordingly.  If you get behind on payments, your score will go down.  As your payment history shows more reliability, it will be reflected positively on your credit score.

Currently, it's possible to have more than one score, depending on which credit bureau furnishes the information and the scoring system used.  In March of 2006, the three main credit bureaus rolled out a system that strives to produce consistent credit scores, regardless of where they originated. 

This new credit score system will be called the VantageScore, and should be available to consumers fairly soon.  It is similar to many of the old scoring systems, with the range of credit scores falling between 501 and 990.  What weight it gives to the 5 elements that determine credit scores is still unknown, but it will be based on a 24-month performance period.  Even though it offers consistent scoring capabilities, the other credit scoring models will still be available to consumers.

Now that you know the elements that determine your credit score, you can use this information to get an estimate of what your score is, by using a credit score simulator.

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