How is Your Credit Score Calculated?

This entire credit score thing might seem tricky if you don't completely understand it. However, once you have a grasp on how it is calculated, you can start working on building up your credit score. There are multiple factors involved in calculating your credit score, and some of them are more critical than the others. So if you don't want that nasty low credit score number hanging over you, it's worth your time to become familiar with how it is calculated.

How Long Does It Take You to Pay?

Your payment history is one of the most important things considered when calculating your credit score. Thinking back to all the times you may have made a late payment or even missed one can haunt you. Nonetheless, even though your payment history is critical, there are still other factors as well.

How Much Do You Owe?

The second most significant factor in determining your credit score is your amounts owed. This can include any money you owe to various vendors, creditors, balances on mortgages and loans, etc. In the eyes of the credit score calculator, the more money you owe the less money you have and the less credit you should have at your disposal. Stay one step ahead and pay off any balances, so that you can build your credit reputation.

What Types of Credit Do You Have?

The different types of credit accounts you have are considered your "credit mix". This plays a role in calculating your credit score but it’s not crucial. It becomes more important when you don't have much credit in other areas such as history, length, and balances. Loans, business accounts, and credit cards are all examples of the types of credit.

For How Long Have You Had a Credit History?

If you opened a bank account when you were young, owned a credit card from an early age, or have been paying student loans, then you've probably gotten a head start on your credit history. The longer your credit history, the better it is for you in terms of a credit score. It takes some time to build a good credit history. That’s why it's best to start as early as you can to build your credit score.

How Frequently Are You Applying for New Credit?

Red flags are waved if it becomes evident that you often apply for a new credit as it indicates that you are struggling financially. The more available credit you obtain the more payments you will need to make. Obviously, this means it can become tricky to keep up with it all. Not only will they look at your new credit when calculating your credit score, but the number of times your credit has been checked will also play a factor. After all, it showcases even more instances where you applied for credit and perhaps were denied.

Pay attention to all the factors mentioned above and you can monitor what kinds of things will show up in your history when your credit score is calculated. So, before you get a credit check, review how it will be determined. This way, you’ll be able to stay one step ahead in all this building a great credit score game.