Monday, December 04, 2006

How credit scores are calculated

You can definitely get lenders attention by filing for bankruptcy but the small things can also have just as big of an impact on your credit score. Here are 5 areas in which credit lenders look to judge your credit score:

  1. 1. Past payment history-Your payment punctuality weighs heavily (about 35%) on your credit score.On the flip side, by paying your bills consistently on time, you can greatly improve your overall score.

  2. Amounts owed- Add up all of your outstanding balances and compare the number to the amount of credit that is available to you. If you are reaching or exceeding your credit limits (perhaps you've heard the term "maxing out"?), lenders will get antsy.

  3. Length of credit history-Fifteen percent of your credit score is determined by how long you've been using credit.Obviously, the longer your credit history, the more favorable lenders will see you. Your score in this area also takes into account how long it has been since you used certain accounts

  4. Amount of new credit-Each time you apply for new credit, an inquiry shows up on your report. Red flags start waving when you take on more credit -- or even just apply for new credit in a short period of time.

  5. Types of credit-Types of credit include credit cards, retail accounts, and installment loans (like car loans and mortgages). Your use or over-use of these has a 10% impact on your overall score.

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