How Your Credit Score is Calculated

It can be hard to understand how to improve your credit score without understanding what your score is made of. To begin, everyone starts out with 300 points. The highest your score can go up to is 850 points. The 550 points that get you from 300 to 850 are made up of 5 different categories: payment history, credit utilization, mix of accounts, age of accounts, and inquiries. 

  1. Payment history

Payment history is a record of whether you’ve paid your bills on time or not. This accounts for about 35% of your credit score for each of the scoring models. Though a single late payment may not hurt your credit score, multiple late payments will. Also, the later you are the bigger the impact it has on your credit score. Payments that impact your credit history include: credit card bills, student loans, mortgage, and car loans. 

  1. Credit  utilization or amount of debt 

Your amount of debt accounts for 30% of credit score. It is calculated by comparing how much revolving credit you have to how much you’ve used. 

  1. Mix of accounts 

Account mix refers to the different types of account being reported in your credit score. This accounts for about 10% of your total credit score. To keep this score up we recommend maintaining at least 3 different types of account ie. credit cards and loans. 

  1. Age of accounts 

Credit age affects 15% of your overall score. For Fico, 12 years is considered an excellent age of accounts. Though everyone isn’t fortunate enough to have 12 years of good accounts there are things you can do. Unless you have a good reason to, avoid closing older accounts. Also, try not to open new accounts too quickly. 

  1. Inquiries 

Though inquiries are thought to make up a large portion of your credit score they only account for around 10% of your total score. Credit inquiries only impact your score for 12 months and come off of your report in 24 months. 

Your credit score does not have to be a mystery. Contact Millennium Financial Services today and start on the road to better credit understanding and a better credit score. Call now (833) 752-7334.

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