While the specifics behind each credit score calculation differ, the following are some of the most important elements that influence your scores.
Payment History
The most crucial component in credit scoring is your payment history, and even one missed payment can lower your score. When lenders evaluate you for new credit, they want to make sure you will repay your debt on time and on schedule. Payment history has a big impact on your FICO® Score™ (FICO® Score used by 90% of top lenders), accounting for 35% of it.
Amounts Due
The next most important factor in your credit scores is your credit usage, which is measured by your credit utilization ratio. The total revolving credit you are using divided by the total of all your revolving credit limits gives you a figure for your current credit utilization ratio. This proportion evaluates how much of your available credit you’re utilizing and can show how reliant you are on non-cash sources of money. Credit usage has a weighting of 30% in FICO® Score calculations.
Length of Credit History
The age of your oldest credit account, the current age of your newest credit account, and the average age of all of your accounts combine to make up 15% of your FICO® Score. This includes the age of your oldest credit account, as well as the age of your newest credit account and the overall average age. Typically, higher FICO® Scores are associated with longer credit histories.
Credit Mix
People with excellent credit scores often have a wide range of credit accounts, such as automobile financing, credit cards, student loans, mortgages, and other forms of credit. Credit score calculations evaluate the kinds of accounts you have and how many of each you possess as an indication of your competence in managing a diverse range of financial products. The percentage weighting for your FICO® Score is 10%.
New Credit
10% of your FICO® Score is composed of the number of credit accounts you’ve recently established and the number of hard inquiries that lenders make when you apply for credit. Too many bank accounts or enquiries might indicate increased risk, which can damage your credit score.