Most people realize that they should pull their credit history and review their scores regularly to make sure their finances are in good order; however, lots of people don't realize how reporting bureaus calculate the scores utilized by lenders. Taking the time to understand credit history scores can help you learn how you can enhance your score, which means you will be able to obtain loans if you want them. Fortunately, the way in which your score is calculated is very clear to see.
Your payment history comprises the largest part of your score - it accounts for 35 percent of the overall score. Payment history includes here is how many payments you've missed, what lengths you've gotten behind in your payments, and how quickly you have caught up. The weight of late payments depends upon the kind of loan - a late payment on the revolving loan might not damage your score too badly, but paying your mortgage late can have a dramatic effect on your ability to obtain a loan later on.
How much money you owe comprises 30 % of your score. Like payment history, this component depends upon the kind of loan. Owing $15,000 on a revolving loan will damage your score a lot more than owing $150,000 on a mortgage.
The duration of your credit history makes up about 15 percent of your score. People with long, established credit histories fare much better than those people who are just becoming financially established. There is little that you can do relating to this, except to maintain a good history of using borrowed money wisely.
The types of credit you carry also factor into your score. Carrying a lot of revolving loans can reduce your score up to 10 percent. A mortgage, however, may have less of a direct effect.
Finally, the amount of new loans you'll have taken out comprises 10 % of your score. If you have accepted several new loans recently, your score will suffer until you begin a solid payment history.
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