Financial Tip Fridays - How is Credit Score Generated
How is My Score Generated?
VantageScore, the company that generates the credit score you see here, uses five major categories of information, all of which were reported to the credit bureaus by your lenders to generate scores that range from 350 to 850 (higher is better, of course).
Each category is weighed differently. Here’s how your VantageScore* breaks down:
40% Payment History. Lenders want to see a history of consistent, on-time payments.
23% Credit Usage. Also known as credit utilization, is the ratio between the total balance you owe and your total credit limit on your accounts.
Tip: Try to keep your credit utilization at 30 percent or below. The reason is that if you are consistently maxing out your credit cards, it may look like a sign of desperation in the eyes of a lender.
21% Credit Age. This is the age and type of credit you have. This percentage factors into how long you’ve had different kinds of credit accounts open. The older your credit history, the better.
11% Account Mix. Your credit account mix considers the number and type of accounts you have. Your score may be higher if you have a mix of both installment credit, like mortgages or car loans, and revolving credit, like credit cards.
5% Inquiries. This is based on recent credit applications. Opening multiple credit accounts in a short period could represent a greater risk for lenders — multiple recent inquiries may worry lenders that you are applying to so many places because you are unable to qualify for credit — or because you need money in a pinch — so avoid opening too many accounts too quickly.
Tip: You don’t have to worry about this if you’re shopping for a mortgage or car loan. All inquiries within 14 days count as a single inquiry.
Remember that time – and patience – are key. You shouldn’t expect a change overnight, but you will see improvement over the course of 12 to 18 months – shorter, if your score is already fairly high and you’re just looking for a bit of a jump.
*based on VantageScore 3.0
Originally written by SavvyMoney
