There are different ways and formulas to calculate your credit score. But in general, there are 5 factors that affect your score. If you have bad credit and you want to boost your score, below are some things you need to understand first
Your credit score is represented by a 3-digit number, which is then assigned a standing from very poor to poor, fair, good and excellent. When calculating your credit score, agencies tap on your credit report. If you have a history of late or missed payments, ccjs or defaults, you’re in for a struggle especially if you’re hopping to apply for a new credit card, a loan or a mortgage.
If you’re currently stuck with a bad credit score, there’s really just one best solution. Find out the best ways to improve your credit score as quickly as possible. To do that, start by understanding how your score is broken down.
As mentioned, there are five factors that affect how your credit score is calculated and they include the following:
Payment history constitutes 35% of your score. This is also what most lenders want to know first thing when dealing with consumers. Included in here are your delinquencies and defaults if there are any.
The amount you owe on your accounts is 30% of your credit score. This includes credit card balances and other loan balances you currently owe on all your revolving accounts. If you want to improve your score, you can do it by trying to lower the amount you owe.
Length of Credit History
The length of your credit history is 15% of your credit score. In general, the longer your history is, the higher your score will be. To determine your credit history, agencies look at how long your credit accounts have been established and how long it has been you’ve been using said accounts.
Types of Credit in Use
The types of accounts or credits you use also matter when calculating your credit score. It includes all your revolving and installment accounts such as credit cards, retail accounts, installment loans and more.
Finally, your new credit accounts constitute 10% of your score. This refers to the number of credit accounts you’ve recently applied for or opened. If you have bad credit, you may opt for a bad credit credit card as a way to build your score. Just remember to keep the number of new credit accounts minimal.