Credit Score Ratings

What Makes Up a Credit Score?

Numerical values are assigned to your payment patterns, available credit, number of credit inquiries, and type of credit. Scores give greater weight to certain payment characteristics, with your payment history and how much you owe carrying the most weight. Approximately 35% of the score is derived from your payment patterns and around 30% from the amounts owed. If you can get a handle on these two items you'll find the other scoring factors will take care of themselves.

You payment pattern simply means paying on time. If you've never had a late payment on a credit account then this fact alone contributes significantly to your score. If you've had a late payment or two recently it will also hit your score fairly hard, especially if this late payment is within the past two years. A recent late payment on a car loan, for example, can drop a 700 credit score to 650 in a heartbeat. Another late payment? You're in the low 600s. But if you've paid your accounts on time you can also expect your credit score to be high. As longm of course, as your other factors aren't being damaged.

The next most important scoring characteristic is your account balances, sometimes called "available credit." Credit scoring wants to see you have credit accounts, but it also doesn't want to see your balances approach the limit, and drop further still if you exceed it. Making minimum monthly payments with high balances on your credit card will slowly erode your credit score. Go over your credit line and you'll really knock your score down.

Credit scores can be affected by how often you make your payments on or before the due date. It reviews the existence of any late payments and in fact how late they actually were in the 30-day increments. A 90-day late payment will hurt your score more than a 30-day late payment. That is unless the 30-day late payment was from last month and the 90-day late payment was five years ago. Remember that scores concentrate more on recent behaviour instead of old behaviour. Payment history also looks for collection accounts or charge-offs and searches public records for bankruptcy filings, judgments, or tax liens.