Credit Scoring

What determines a credit score?

Payment History

Impact 35%

Paying debt on time and in full (especially ahead of the set term) has a positive impact. Late payments, judgments, and charge-offs have a negative impact.

Outstanding Credit Balances

Impact 30%

Your debt ratio of outstanding balance to available credit is important. Keeping that ratio below 50% is wise, and below 30% is even wiser. It is never a good idea to close an account. The debt ratios will go up and the number of seasoned lines will decrease. Pay outstanding debt down, as close to zero as possible, and evenly re-distribute the remaining balance among your open credit lines. Hitting the maximums of available credit can be very negative. It may be worth calling and asking the credit company to increase your available credit to lower your debt ratio, as long as they can do so without injuring your credit.

Credit History

Impact 15%

The longer a particular credit line has been opened, the more it improves your credit. Seasoned borrowers are preferable to new ones.

Type of Credit

Impact 10%

A mix of auto loans, credit cards, and mortgages positively affects your credit, while a concentration in credit cards only is negative.


Impact 10%

Inquiries for credit can negatively impact your score. Auto and mortgage inquiries receive special treatment — 20 inquiries can be made in a 14-day period for these loans and will be treated as only one inquiry. 10 inquiries or less within six months will not affect your score, but more than 10 will. Each subsequent inquiry can cost 2-50 points on a credit score.

Quick Tips for Increasing Your Credit Score

  • Pay your bills on time. Delinquent payments and collections can significantly negatively impact your credit score.
  • If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your score.
  • Keep balances low on credit cards and other “revolving credit.” High outstanding debt can lower your credit score.
  • If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. This won’t improve your credit score immediately, but if you can begin to manage your credit and pay on time, your score should get better over time. Seeking assistance from a legitimate credit counseling service will not hurt your score.
  • Pay off debt rather than moving it around. The most effective way to improve your score in this area is by paying down your revolving credit.
  • Don’t close unused credit cards as a short-term strategy to raise your score. Owing the same amount but having fewer open accounts may lower your credit score.
  • Don’t open a number of new credit cards that you don’t need, just to increase your available credit. This approach could backfire and actually lower your credit score.
  • Avoid credit repair agencies that charge a fee to improve your credit score by removing negative, but accurate, information from your credit reports. No one can force credit reporting agencies or lenders to remove accurate information from a credit report. Credit repair companies often take your money without delivering what they promise, or provide only temporary improvements of your score, sometimes by removing accurate information that will reappear later.
  • If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you don’t have a lot of other credit information. Even if you have used credit for a long time, opening a new account can still lower your score.
  • Do your rate shopping for a given auto or mortgage loan within a short period of time. Credit scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.
  • Be careful about opening new accounts that you don’t need. Opening new accounts can lower your credit score in the short term. Beware of discounts or low interest rates being offered to entice you to open a new charge account that you don’t need.
  • Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them off on time will raise your score in the long term.
  • Note that it’s OK to request and check your own credit report. This won’t affect your credit score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.
  • Apply for and open new credit accounts only as needed. Don’t open accounts just to have a better credit mix— it probably won’t raise your credit score.
  • Have credit cards—but manage them responsibly. In general, having credit cards and installment loans (and making timely payments) will raise your credit score. People with no credit cards, for example, tend to be higher risk than people who have managed credit cards responsibly.
  • Note that closing an account doesn’t make it go away. A closed account will still show up on your credit report, and its history will be considered in your credit score.

These tips provided by: FICO® Fair Isaac Corporation

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