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Anatomy of a Credit Score

by Barbara Marquand

What's in a credit score? 

You probably know that your credit score helps determine whether you get approved for a loan or credit cards, and at what rates you qualify. The better your credit score, the better your chances of getting credit with favorable terms.

But the elements that factor into your score may seem a bit fuzzy. Credit scores are based on the information in your credit reports, which are maintained by three major U.S. credit reporting bureaus--Experian, Equifax, and TransUnion.

Credit Score Calculation: What Information Is Used?

Here's a breakdown of a FICO score, the most commonly used credit score today, and ballpark percentages for how much each item counts toward your total score.

1. Payment History, 35 percent. This portion of your score is based on how well you keep up with your bills. Overdue payments, suits, liens, bankruptcy, wage attachments, and collection items all count against you. One of the best things you can do to achieve a good credit score is simple: Pay your bills on time.

2. Amounts Owed, 30 percent. The amounts you owe on credit cards and to lenders, as well as the proportion of those amounts to available credit are considered. To improve your score, pay down your loans and keep your credit card balances low--less than 30 percent of your credit limits.

3. Length of Credit History, 15 percent. The age of your accounts and the amount of time that has passed since there was account activity are considered. If you have to close credit card accounts, close the newest accounts first, and don't open up a bunch of new accounts at once. That lowers the average account age.

4. New Credit, 10 percent. This portion of your score takes into account the number of credit inquiries, number of recently opened accounts, the amount of time since the opening of new accounts, and credit inquiries and the re-establishment of a positive credit history after past payment problems. Inquiries from potential creditors count against you, but your own requests to review credit reports do not impact your score.

5. Types of Credit Used, 10 percent. The number of different types of accounts are considered. Maintaining a good payment history on different types of credit helps your score.

Fair Isaac Corporation, developer of the FICO score, says it's impossible to say exactly how much one factor is weighted. These percentages are averages for the general population.

Published 03/07/11 (Modified 03/09/11)


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