There are 5 major factors that determine the composition of the credit score: payment history, amount of amounts owed, length of credit history, types of credit and last credit inquiries made, here we explain how each factor works.

As we saw in the previous article, What is it, what is it for and why is a credit score important?, the credit score can determine if you are granted financing and what the cost and terms of the financing will be.

But now, how do we calculate the credit score? Here we break it down into 5 key points.

HOW IS THE CREDIT SCORE CALCULATED?

The determining factors for the calculation of the credit score are as follows:

1. PAYMENT HISTORY

This factor corresponds to 35% of the score, it is worth mentioning that this factor is the most important, it means how well you are paying, if you pay on time and if you had any late payment (if 30 days or more have passed since your payment date and it is still not paid).

It is also very important to consider if you have had any bankruptcy, foreclosure or similar issues. We know how important it is to pay on time, but we really need to put it into practice so that the score is not drastically affected.

2. AMOUNTS OWED VS. YOUR CREDIT AMOUNT

It makes up 30% of your score, this refers to the level of your debt. it is healthy to keep your percentage of your credit limit below 40% of your credit at the card cutoff date.

3. LENGTH OF YOUR CREDIT HISTORY

Make up 15%, the longer you have started building credit history the better the percentage, the older your credit record shows that you have more experience with your finances.

 4. TYPES OF CREDIT

It makes up 10% of the score, meaning how varied the types of credit you have acquired are from a medium to long term installment loan, a car loan, home loan, business loan, college loan, fixed term obligations with a set repayment term.

By having more accounts and a variety of financial products you can demonstrate that you have more experience managing several different types of credit at the same time.

5. CREDIT INQUIRIES

inquiries that appear when you apply for a new credit or limit increase, as well as those related to things like housing applications or utilities.

It is important to know that there are two types of inquiries: HARD CREDIT PULL (when you report the inquiry to a credit bureau) AND SOFT CREDIT PULL: these inquiries do not affect the credit score because it is only a general snapshot of the credit report.

It is best to check your own credit or make sure that the institutions to which you apply make a soft inquiry on your report.

We hope this information has helped you to manage your score correctly and if you still have any doubts, please contact us for a free consultation.

You can schedule a call with our specialists for consultation on our repair service, we will help you to improve it.