Your credit score may have one of the biggest impacts on your financial well-being; it affects your loan eligibility, interest rates, and even your chances of a promotion.
There are several methods that credit bureaus use to calculate your score, but most are built around similar fundamentals. A good understanding of how your actions impact your credit can help you build better financial habits.
The Credit Report
Your credit report contains personal details such as your address and social security number plus a variety of reports from lenders and public institutions. Basically, this includes any information that demonstrates your likelihood of satisfying future debt obligations, such as your recent payment history or a filing with a bankruptcy lawyer Rockville MD.
The Credit Scale
The most well-known credit scales start at 300 and go up to 850, and the general benchmarks are:
- 720-850: Excellent
- 690-719: Good
- 630-689: Fair
- 300-629: Poor
It’s important to note that lenders all have their own criteria that govern their qualification processes, and they often look at much more than just your credit score.
The Five Factors
The generally accepted model for calculating credit scores is based on five factors with various levels of impact:
- Payment History (35%):Creditors report both on-time and late payments. Most will wait until your payment is over 30 days past due before they notify the credit bureaus.
- Credit Utilized (30%):This is a real-time ratio of how much you owe compared to how much total credit you have available.
- Account Age (15%):The longer you’ve had open credit accounts in good standing, the more favorable your creditworthiness.
- Credit Inquiries (10%):Each time a lender makes an inquiry to view your credit report, it is recorded and can have a negative influence.
- New Accounts (10%):Your report maintains a category for accounts less than 1 year old, and having too many might be viewed unfavorably.
It is vital that you keep tabs on your report, as sometimes the information is incorrect and could be unnecessarily hurting your score.