Here’s How Your Credit Score Is Calculated

Your credit score is the most important factor in determining if you qualify for a loan. It is also crucial in shaping the terms of your loan. A credit score is a three-digit number that a lender uses to decide how trustworthy you are when it comes to managing your finances and your ability to repay a loan. The higher your score, the less risk you are to the lender and the more optimal the terms of your loan will be. Credit reporting agencies use seven primary factors in calculating your score.

  1. Your payment history is the most important because it reflects on-time payments, missed payments and those that were late.
  • The ratio of the amount of credit you are using against your available credit is factored in. Try to keep credit balances no more than 30% of the available credit.
  • Total debt will be part of the credit score calculation. Loans, collections, credit cards and other credit accounts are part of the equation.
  • The credit score will reflect what the mix of your credit accounts are. It looks at auto loans, mortgages, store credit and credit cards.
  • The age of your credit accounts are an element of your credit score. Older histories have less impact on your score than more recent credit histories. Lenders want to see established histories of on-time payments.
  • Inquiries into your credit by various entities are known as hard inquiries. Too many inquiries will lower your score.
  • Credit scores are impacted by debts that show up in public records. These include tax liens, civil judgments, and bankruptcies. Paying off any of these liabilities will increase your credit score.

Call or email me and I will help you navigate what impacts your credit score so you can have the best loan options.

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