How a Credit Score is Determined

If you would like to improve your credit it is important to understand how your credit score is determined. A credit score is a mathematical model to evaluate information on a credit file. The data is grouped together in five categories as follows:

35% Payment History Having a good payment history reflects that you make payments on time and do not miss payments on credit accounts. This is one of the most important items a lender will look for.

The presence of adverse public records such as bankruptcy, judgments, liens, collections, or delinquencies (past due items), as well as the severity of the delinquency, the amounts past due, the time since the delinquencies or negative items were reported, as well as the number of adverse items on the report are all considered.

30% Amounts Owed: This is a measurement of the amount you owe in proportion to the total credit limits you have available. Someone who is closer to their maximum credit line is deemed a higher risk for late payments than someone showing larger available credit limits.

15% Length of Credit History

The credit-scoring model considers your oldest account and the average age of all your accounts. It is a good reflection on your credit report to have an account with a long history.

10% New Credit

The number of recently opened accounts and the type of account can affect your score. Also multiple credit inquiries can represent a greater risk.

The type of credit you have in use is considered, your mix of credit cards, mortgage loans, installment loans and consumer finance accounts affect your credit score.

A credit score takes into consideration all of these categories to determine your score. Remember your credit score is a consideration of both the positive and any negative information in your credit.

Step 1 Credit has credit programs that can help you improve your credit, for more information call today for a free consultation