In recent posts we’ve offered a few reasons why your credit score matters –even if you plan to never borrow money again. We’ve explained how to obtain your free credit report, and what to do if you find errors on it.
Before we get into ways to improve your credit score (a future post), let’s get a basic understanding of what comprises your credit report:
Payment History (35%)
Your score is negatively affected if you’ve paid bills late, had an account sent to collection or declared in bancruptcy. The more recent the problem, the lower your score.
Outstanding Debt (30%)
If the amount you owe is close to your credit limit, it will likely have a negative affect on your score.
Length of your Credit History (15%)
The longer your accounts have been open the better.
Recent Inquiries on Your Report (10%)
If you have recently applied for many new accounts, that may negatively affect your score. Promotional inquiries don’t count.
Types of Credit in Use (10%)
Installment credit, revolving credit, monthly due cards (i.e. gas cards). Excessive use of finance companies or buy-here-pay-here financing can lower your score. FICO says this is most important when there isn’t a lot of other information upon which to base a score.
