For some, it sits comfortably high in the 700s, while for others, it’s the financial skeleton in their closet they’d rather not discuss thank-you, but how exactly is it calculated? Well, before we examine that, it’s worth understanding what your credit score isn’t. It is not a reflection of the money you have saved in your bank account or the income you generate each week or month. Also, it is not a calculation based on your debt-to-income ratio or your net worth either. And in this day and age, credit scores are possibly one of the few things you can count on that are in no way influenced by race, gender, age or religion.

Your credit score is actually a summary of just how well you can borrow money and then pay it back. A consistent ongoing measure of how you are managing your current debt situation. And ironically, you can only achieve a good credit score by being in a certain amount of debt. The important factors are that you’re paying off your accounts perfectly and not incurring any more debt.

Your Credit Score Breakdown

Payment History = 35%
Any late or missed payments, collections, and bankruptcy suits influence this percentage. You score adds up these negative events and takes into account when they happened too. To make improvements on your score always make bill payments on time.

Amount Owed = 30%
Known as credit utilization; simply put it’s the amount of debt you’re in compared to your credit limits. Maxing out your credit limits (high credit utilization) can have adverse effects on your score.

Account Diversity = 15%
Use this to work in your favor; multiple accounts in different lines of credit show that you are highly capable of managing your finances. As long as you make payments regularly and on time. Different account types can be a mix of credit cards, a loan, an overdraft or a mortgage, etc.

Credit History = 10%
Contrary to popular belief the sooner you start your credit history, the better. The longer your good credit history is, the more financially responsible you demonstrate yourself to be; which increases your chances of being offered credit in the future.

Inquiries = 10%
The number of credit checks made on your behalf when you apply for a loan, credit card or mortgage, also impact your score. These are typically carried out before any lending decision, and multiple inquiries can reflect negatively on you.

Understanding your credit score is one of the first steps on the path to restoring it. Take advantage of our industry expert’s help to restore yours today.