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How to understand your credit score.

How to understand your credit score is easier than you might first think.

Your credit score is a number the credit bureaus give you based on five different areas.

A lender will look at your score and the other areas of your report to make a decision if they will grant you a loan.

Building and maintaining a good credit score is an important part of your financial history and ability to get a better paying job and get you the best rates and terms on the loans you may want and need.

Here are five areas of consideration that make up your credit score.

You can raise your credit score if you know what to do and how it works.

First let’s do this… picture a pie chart.

This pie chart will make up your total score. The first piece of the pie represents 35 percent of your credit score, that will be your credit history. The next slice of the pie totals 30 percent and is derived from the number of accounts and their balances that you have.

The ages of your debt make up the next 15 percent of the pie chart. The balance of new credit on your credit report makes up 10 percent of your credit score. And the final 10 percent is accounted for the types of credit you have.

Here’s How Your Credit Score is Calculated

Your credit history (35 percent) shows the lender your payment history. Making your payments on time can raise your credit score. Missing or being late on a payment can lower your credit score 80 to 120 points.

The credit bureaus are looking for frequency and patterns of late payments to determine your credit history.

This “One Thing” Is The Best Thing You Can Do To Raise Your Credit Score

This the largest factor in helping to raise your credit score.

Make your payments on time! 

The credit bureaus look at the number of open accounts you have and the balances to help determine your current financial picture. Lenders look to see how much you owe comparing your earnings against your spending habits, this is also known as your income to debt ratio.

Lenders don’t like to see people with high debt to income ratios because they are more likely to default on a loan. This portion of your credit score helps credit bureaus determine whether or not you are over-extending yourself. Lenders like to see 36% or less debt load for most people to carry.

How To Get Lenders To Say Yes To Your Loan

Lenders like to see that you can control your spending in relation to your income.

The length of your credit history (15 percent) is made up from the ages of your accounts and how long since you have used these accounts. If you have had a credit card for ten years and have maintained a positive standing with that card, this will help increase this portion of your credit score.

If you have faithfully been paying on a car loan for 3 or 4 years the credit bureaus will apply this to a positive credit score.

The next area that is considered when totaling your credit score is the amount of recent debt (10 percent). Have you recently taken on 3 new credit cards and a new auto loan?  If so, this may drop this portion of your credit score.

The final portion of your credit score is derived from the credit mix (10 percent) your credit report shows.  The bureaus look at number of unsecured accounts (credit cards) versus installment loans (car loans or mortgages).

The credit bureaus are looking for a balanced mix of credit lines.

Knowing what in included in your overall credit score can help you in maintaining a positive credit score. In addition, this knowledge can help you rebuild or raise your credit score.

Still wondering what you can qualify for?

If you are wondering how much credit you can qualify for, please call us at 303-761-8045 or email us today and we’ll get back with you shortly.