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  • Posted April 1, 2019

What’s In A Credit Score

Your credit score has a role in much more than just getting loans, now it can affect your insurance premiums (auto, home, etc) in addition to buying a car, home or renting an apartment. Here is an overview of how your score is calculated:

35% Payment History – Have you paid your bills on time? Deductions to your score will occur if you’ve paid late (30, 60, 90 days), especially if it happens frequently.

30% Amounts Owed – Using more than 30% of available credit will reduce your score, ideally you’ll use less than 20%. For example, you own (4) credit cards and each has a limit of $5,000. Your total available credit is $20,000 (4 x $5,000). To get the best score you would want to use less than $4,000 of the credit (0.2 x $20,000).

15% Length of Credit History – How long have you had accounts open, the age of your newest account and how long since an account has been used. An account is a debt – car loan, credit card, mortgage.

10% Credit Mix – Where are you using credit? Auto loans, mortgage, store cards, credit cards, etc. I encourage clients to have no more than (2) credit cards and avoid store cards because they typically have higher interest rates. Not having a variety of debt is not a bad thing.

10% New Credit – Opening too many new accounts can hurt your score, it could indicate to the credit bureaus you cannot keep up with your expenses and need to borrow from someone else. Try to minimize how much New Credit you incur, especially in credit cards.