How Is Your Credit Score Determined?

Credit Score is one of the most important factors in determining your ability to qualify for a mortgage, which programs you qualify for and dictating the rate you will be offered.  So, the best way to understand how to improve your credit score is having complete knowledge of what impacts your credit score.  Hopefully, after reading this blog, you will better understand credit scores and will know what needs to be done to improve your credit score.

Five Factors That Determine Credit Score


Payment History – 35%

Payment History has a 35% impact on your overall credit score.  This is the factor that has the biggest impact in determining your score.  Therefore, paying all of your accounts that are listed on your credit report is essential in having the highest possible credit score.  As long as you are not over 30 days late, it will not have a negative impact on your credit and the creditor will report your payment history as satisfactory.  If you have multiple payments over 30 days late, this will have a huge negative impact on your credit score.


Amounts Owed – 30%

The amount you owe on your accounts has the second largest impact on your credit score, especially revolving accounts (credit cards).  So, if you have maxed out credit cards, this can be devastating to your credit score.  A general rule of thumb is to have your balance less than 30% of the credit limit on your credit cards.  For example, if your credit card has a $1000 credit limit, it is very important to have a balance of less than $300.  Anything over $300 will decrease your credit score and the higher the balance, the greater the negative impact.  By managing your credit card balances, this shows you have the ability to manage your available credit and consistently make payments on time.


Length of Credit History – 15%

The longer you have positive established credit, the higher the credit score.  Paying your various accounts on time for multiple years shows you have habits that display responsible spending and the ability to pay your accounts on time.  However, if you don’t have accounts you have consistently paid for several years, one way to overcome this is to be an authorized user on someone else’s account that does have an established credit history.  Talk with your local Lender on how best to handle this.


New Credit – 10%

If an individual has opened multiple new accounts in a short period of time, this can negatively impact the credit score.  The credit bureaus look at this as if the individual is not responsibly handling the finances and is in trouble.  Therefore, it is very important to open new accounts in an responsible manner.


Types of Credit Used – 10%

Having experience with different types of credit can help your credit score.  Some examples of different types of credit are car loans, credit cards, and installment loans.  This illustrates the individual has the ability to handle different types of payments and amortizations.  One negative type of credit is finance company accounts.  This type of credit is viewed as a high risk loan and will reduce your credit score.  Additionally, the interest charged on these types of accounts is devastating and cripples the individuals ability to get ahead financially.



So, if you have additional questions about what determines your credit score or how to improve it, give us a call at 803 261 9267.  Additionally, if you are looking for a loan in Columbia, Lexington, Blythewood, Sumter, Chapin, Irmo or anywhere is South Carolina, give us a call.  We will be happy to help!




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