Your Credit

How Your Score Is Determined

New Credit Types of Credit in Use-10%, Length of Credit History-15%, Amounts Owed-30%, Payment History-35%... New Credit and Multiple credit requests represent greater credit risk. However, the bureaus distinguish between a search for many new credit accounts and rate shopping for one new account. Your scores take into account:

How many new accounts you have
The scores look at how many new accounts there are by type of account. They may also look at how many of your accounts are new.

How long it has been since you opened a new account
Again, the bureaus look at this by type of account.

How many recent requests for credit you have made, as indicated by the inquiries to the credit reporting agencies.
- Inquiries remain on your credit report for two years, although the bureaus generally only consider those from the last 12 months. The scores have been designed to count only those inquiries that truly impact credit risk.
- Length of time since credit report inquiries were made by lenders.
- Whether you have a good recent credit history following past payment problems.
- Re-establishing credit and making payments on time after a period of late payment behavior will help to raise your score over time.

Length of Credit History

In general, longer credit history will increase your scores. However, even those who have not been using credit long may have high scores, depending on the rest of the credit profile. Your scores take into account:
-How long your credit accounts have been established. The scores consider both the age of your oldest account and an average of all your accounts.
-How long specific credit accounts have been established.
-How long it has been since you used certain accounts.

Amounts Owed

Having credit accounts and owing money on them does not mean your are a high-risk borrower with a low score. However, owing a great deal of money on many accounts can indicate that you are overextended, and are more likely to default on your payments. Part of the science of determining of credit scoring is determining how much is too much for a given credit profile. Your scores take into account:
-The amount owed on all accounts.
-Note that even if you pay off your credit card in full every month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show on your credit report.
-The amount owed on all accounts, and on different types of accounts.
-In addition to the overall amount you owe, the score considers the amount you owe on specific types of accounts, such as credit cards and installment loans.
- Whether you are showing a balance on certain types of accounts.
-In some cases, having a very small balance without missing a payment shows that you have managed credit responsibly, and may be slightly better that carrying no balance at all. On the other hand, closing unused credit accounts that show zero balances and that are in good standing will not raise your score.
-How many accounts have balances.
-A large number can indicate higher risk of over extension.
-How much of the total credit line is being used on credit cards and other “revolving credit” accounts.

-Those who are closer to “maxing out” on many credit cards may have trouble making payments in the future.
-How much of installment loan accounts is still owed, compared with the original loan amount.
-Paying down installment loans is a good sign that you are able and willing to manage and repay debt.

Payment History

The first factor any lender looks at is whether or not you have paid past credit accounts on time. This is one of the most important factors in your credit scores. Your scores take into account:
-Payment information on many types of accounts.
-These will include credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans.
-Public record and collection items-reports of events such as bankruptcies, foreclosures, wage garnishments, liens, and judgments.
-These are considered quite serious, although older items and items with small amounts will count less than more recent items or those with larger amounts. Bankruptcies will stay on your report for 7-10 years, depending on the type.
-Details on late or missed payments and public record and collection items.
-The bureaus consider how late the items were, how much was owed, how recently they occurred, and how many there were.
-How many accounts show no late payments.
-A good track record on most of your credit accounts will increase your score over time.

Tips For Raising Your Scores

-Pay your bills on time. Delinquent payments and collections can have a major negative impact on your scores.
- If you have missed payments, get current and stay current.
The longer you pay your bills on time, the better your scores.
- Be aware that paying off a collection account, or closing an account you previously missed a payment on, will not remove it from your report.
The bureaus consider the information, as it reflects your past credit patterns. Keep balances low on credit cards and other revolving credit.
- High outstanding debt can affect your scores.
- Pay off debt when possible, rather than moving it around.
- The most effective way to improve your scores in this area is paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your scores.
- Don’t close unused credit cards as a short-term strategy to raise your score.
- Don’t open a number of new credit cards that you don’t need, just to increase your available credit. This approach could backfire and actually lower your scores.
- If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly.
- New accounts will lower your average account age, which will have a larger effect on your scores if you don’t have a substantial amount of other credit information. Also, rapid account build-up can look risky if you are a new credit user.
- Do your rate shopping for a given auto or mortgage loan within a focused period of time.
- The bureaus distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which the inquiries occurred.
- Re-establish your credit history if you have had past problems.
- Opening new accounts responsibly and paying off on time will raise your score in the long term.
- You are entitled to one free credit report per year.
- This won’t affect your scores, as long as you order your report directly from one of the three major bureaus or through an organization authorized to provide credit reports to consumers.