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Knowing what makes up a credit score keeps it high

By George Hauser
Published: Thursday, September 10th, 2009

Because credit score is important in applying for loans, getting insured and even securing a job, you should know exactly what makes up your credit score. As you might already know, the credit score is the mathematical equivalent of your credit report. Your credit report contains information about your credit history and activity.

One good credit score advice is to not lose track on your credit report. Missing payments among other things reflects on your credit score. On 2009, there have been changes in how credit scores are calculated. You need to be updated on these so you don’t get shocked the next time you don’t get the loan you are applying for.

There are essentially five things that affect your credit score. These are:

  • Payment History
    The difference between average and exceptional credit can still be based on how soon and how well you can handle your payments. Before 2009 started, payment history had the biggest impact on credit scores at 35%. But today, not being able to pay on time doesn’t hurt your record so bad. Putting it in another way, if you failed to sustain your clean report of paying on time and missed a couple of times, your credit score doesn’t automatically drops. However, take the credit score advice of maintaining your good paying record. When you decide on going for a foreclosure, it stays on your report for seven months. Also, the months before the foreclosure happened are also included.
  • Amount borrowed in contrast to available credit
    If your payment history used to be the greatest factor in determining your credit score, in 2009, it is taken over by your revolving credit. This means that what you used to be 30% of your credit score which is the amount of your revolving credit in relation to your available balances has now greater impact. It is calculated on individual accounts and overall accounts. A credit score advice you can follow is to avoid borrowing more than 50% of your available balance from a single lender. This is the same as borrowing only 33% or less than your available balance. Also another credit score advice to keep your credit score safe is to borrow little amounts using several credit cards rather than maxing out on one.
  • Length of credit history
    This may sound strange but keeping your accounts open over seven years effectively raises your credit score. Of course, a credit score advice is to keep at least three credit cards and maintaining their low balances. 15% of your credit score comes from the length of your credit history. It’s better to pay off your credits rather than closing them. Keep them open with a small a small amount to be paid every month.
    Inquiries and new debt
    10% of your credit score comes from credit inquiries you make. Inquiries reflect your capability as a borrower. If you have too many inquiries, that could mean you’re into financial trouble having too many debts. A credit score advice is to keep the inquiries because of an application you made for credit to the minimum.
  • Type of debt
    The final element affecting your credit score is the kind of debt you make. There are essentially two kinds of debts: installment and revolving. If you can, avoid having revolving credit since the other type is more favored. In 2009, credit score advice for upping your credit card score, which applies to all, is to manage both types of credit.

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