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Credit Report & Credit Score; Credit Repair, Debt Management > Credit Score > Understanding the Factors that Make Up a Credit Score

Understanding the Factors that Make Up a Credit Score

By Ruth Racey
Published: Monday, October 19th, 2009

It is very important to understand the calculations done on your credit scores. However, be aware that the three major credit reporting agencies in the US use different procedures. As such, expect scores coming from each of these agencies to have slight differences.

There are several factors to be considered in personally estimating your credit rating. If you have never borrowed money or owned a charge account or even have a bill to your name, your score would be zero. Although no one can label this as bad credit, having no charge account to your name will still make it hard for a loan application to be approved. There might be some companies willing to take you on, but loan approvals are easier to come by if a charge account has already been built up.

Take note that credit history makes up an estimated 35 percent of the total credit score and this is very vital. Missing bill payments or defaulting on debts will hurt your score and it will take as long as seven to ten years for this to be expunged. Bad moves done now will still hurt your rating in the coming years. Although you may be repaying your debts at the moment, they will still appear as late payments in your charge statement.

Your credit history’s length is 15 percent of your rating. As such, it is a smart move to set up credit as soon as you are able. There will be an ascending improvement to your score as long as you keep a bank account. Length of residency and employment are also categorized under this section, so it would help if you have been living in the same address and kept the same job for more than two years.

Current debts tally as 30 percent of your score. Even if you have not missed payments, but have a number of loans at one time, more credit applications will be denied. This is the reason why it is essential to only take out much needed loans and make sure to pay them on time.

Ten percent of your rating lies on new accounts. The types of loans you have and the ones that are still being paid will also be looked into. It is not suggested for accounts to be opened and closed much too quickly.

Knowing how credit scores are calculated gives you control over the statements you are getting annually. This way, you will be able to see mistakes easily and have them addressed.

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