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What makes up my Credit Score?
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Each of the three major credit bureaus has its own proprietary credit scoring methodology—thus scores vary slightly from firm to firm. The "Vantage” score, a joint effort of the three credit bureaus is common across the three firms. 

The credit score itself is commonly called a "FICO” score, after Fair Isaac Company, the first company to develop a scoring algorithm.

 

FICO Credit Score Composition


 35%   Do you pay your bills on time?

  • Payment history on all accounts
  • Length of your positive credit history
  • How long you have been without a negative item
  • Any severe unpaid debts such as foreclosure or bankruptcy
  • Quantity and severity of delinquencies in your credit history

30%   Credit utilization ratio--How much of the credit available to you are you using?

  • Too many accounts with too high balances vs. credit limits
  • Amount of debt on each account
  • Amount of debt paid off on installment accounts

15%   Length of Credit History

  • Length of credit history
  • Length of time specific accounts have been open
  • Duration of time since last account was used

10%   New credit

  • Considers whether you taken on new credit that may cause you to overextend yourself
  • When was the last time an account was opened?
  • How many accounts were opened?
  • Number of hard inquiries (stay on report for two years, but figure into scoring methodology for one)—does not penalize if you shop for a loan as long as the related inquiries are within a short window of time—nevertheless be careful!

10%   Types of credit

  • Mortgages + Installment loans + revolving debt

 

Do not obsess about your score. It doesn’t matter unless you are in the market to borrow. Employers and landlords review your report—not the actual score.

If you pay your bills on time and make progress in paying down debt, your credit score is moving in the right direction.

<NEXT:  How to build or improve your credit>

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