Have you ever wondered what makes up your credit score? Well, you’ve come to the right place because we are going to explain what a credit score is and the factors that contribute to a credit score. A credit score (at the time of writing) is a three-digit number generated by a mathematical algorithm. This is what determines how much of a risk you pose to financial institutions. The higher the credit score the lower the risk. This means that car that you’ve been wanting for quite a while can now be yours at a low-interest rate. This is all due to you having a high credit score. There are many forms of credit scores that exist, but your FICO is what 90% of all financial institutions use in their decision-making process according to CNBC. This FICO score ranges from 300-850. Now that you’ve got an idea about what a credit score is, let’s get into what makes up a credit score.
1). Your payment history (35%): this includes any debt that you have not paid off such as student loans or medical bills.
2). The amount of money owed (30%): this extends the previous point. The amount of money you owe is factored into how much of a risk you pose.
3). Length of credit history (15%): having an active account can significantly boost your score. It shows that you are an asset and a liability.
4). Credit mix(10%): This relates to the various types of credit accounts you have including mortgages, loans, credit cards, etc…
5). New credit(10%): applying for new credit cards. These inquiries remain on your credit report for 2 years.
We hope that we were able to inform you of the factors considered in determining your credit score. Stay tuned for the next blog!