A Recipe For Your Credit Score
Learn more about the ingredients in your credit score
Recipe for Credit Score Soup
Start with 1 pound of payment history.
Stir in 1 pint of amounts owed.
Sprinkle in ½ cup of length of credit history.
Add a pinch of new credit.
Add a teaspoon of credit types.
Mix well.
Bake at 350 degrees for 30 minutes. Serve hot.
To cook your favorite dish, you need to know what the right ingredients are and which ingredients are most important to make that dish taste best.
To earn and maintain a good credit score, it's also important to know what "ingredients" go into your credit score and which of those ingredients are most important.
Here are the ingredients in your credit score, the ingredients that aren't in your credit score, and which of those ingredients are most important.
What's In Your Credit Score?
Here are the ingredients in your credit score:
· Payment History: Any payments you've made on all credit, including information about bankruptcies, settlements, legal judgments, and collections, as well as any payments you've made on time, made late, or missed.
· Amounts Owed: The total amount of debt you owe, how much you owe on each account, how much of your available credit you use, and how many accounts you have open.
· Length of Credit History: How long you have been using credit, the time since your last activity.
· New Credit: Any recently opened accounts, recent inquiries into your credit history, time since your newest account, and how long you've reestablished your credit since a bankruptcy or delinquency, for example.
· Types of Credit Used: The different kinds of credit you have, such as credit cards, personal loans, mortgages, car loans, or student loans.
What's NOT in Your Credit Score?
These things are NOT ingredients in your credit score:
· Personal information, such as age, gender, race, religion, or marital status.
· Work-related information, such as your income, where you work, or your work history.
· "Administrative inquiries," such as a credit check as part of a background check.
· Interest rates on your accounts.
Which Ingredients Are Most Important?
Like any recipe, each ingredient in your credit score contributes to its overall "flavor," but the flavor of some ingredients stands out more than others. The same is true of your credit score. This chart shows approximate percentages based on the importance of each ingredient in your credit score. These ingredients may vary depending on the type of credit score and which entity is compiling it. These are general guidelines to keep in mind, with each credit agency basing their scores on their own "recipe".
Like any recipe, each ingredient in your credit score contributes to its overall "flavor," but the flavor of some ingredients stands out more than others. The same is true of your credit score. The chart below shows approximate percentages based on the importance of each ingredient in your credit score. These ingredients may vary depending on the type of credit score and which entity is compiling it. These are general guidelines to keep in mind, with each credit agency basing their scores on their own "recipe".
Credit Score Ingredients
The most significant parts of your credit score are your payment history and amounts owed. For this reason, it's important to reduce your overall debt load, make your monthly payments on time, every time, and talk to your creditors as soon as you think you may fall behind on your payments.
It's also important, if you plan to close any accounts after paying them off, to keep your oldest accounts open and close your newest paid-off accounts to keep a longer credit history, which helps your credit score.
Knowing what ingredients are in your credit score, what ingredients are not in your credit score, and which ingredients are most important in your credit score is a key step in earning and maintaining a good credit score, which increases your financial options.
Related Articles
Seven Tips to Protect Your Credit When Life Happens
Batting Average versus Credit Scores
Five Credit Score Myths Busted
These are general recommendations not applicable to all financial situations. Every financial situation is unique. Further, the suggestions and recommendations contained within the content provided are not an assurance of any future result. Be sure to discuss your specific financial circumstances with a legal or financial expert. Contact us for more information.
