Your credit score is a very important number that can affect your life in a lot of ways. It is used by lenders to decide how risky it would be to lend money to you, and can determine the interest rate you are offered on a loan. Your credit score can also influence whether or not you are approved for a lease or mortgage, and even how much you pay for car insurance. In this blog post, we will teach you how to calculate your credit score so that you have a better understanding of what goes into it.
What factors go into a credit score?
When it comes to how your credit score is calculated, there are many factors that come into play.
A few of the most important ones include:
Payment history
This looks at how regularly you make payments on time and how often you are late or skip payments altogether.
Credit utilization rate
This factor takes into account how much of your available credit lines you have used up. It’s generally recommended to keep your credit utilization rate below 30%.
Credit mix
The types of accounts you have open can also affect your score, including installment loans (e.g., car loans), revolving lines of credit (e.g., credit cards), and mortgage loans.
How your payment history affects your score?
Your payment history is one of the most important factors that goes into calculating your credit score. It accounts for 35 percent of how your score is calculated. It takes into account how often you make payments on time, how many late payments you have made and how long those late payments were outstanding. Generally, when someone pays their bills on time, they will receive a higher credit score than someone who has missed or been late in making payments.
Another key factor to consider is how much debt you currently have compared to how much available credit you have access to. This is known as your “debt-to-credit ratio” and it accounts for 30% of how your credit score is calculated. The lower this ratio is, the higher your score will be. It is important to keep your debt-to-credit ratio as low as possible in order to maintain a good credit score.
The importance of credit utilization
Here’s how to calculate it:
1. Credit Utilization: This is calculated by dividing how much of your total available credit you’ve used up. The lower this number is, the better it is for your credit score. A good rule of thumb is to use no more than 30% of your total credit limit at any given time.
2. Payment History: Payment history makes up a large portion of how your credit is calculated—it accounts for 35 percent of your FICO® Score calculation, in fact! It’s important to always make payments on time and avoid late fees wherever possible. If you’ve missed a payment or two, make sure to pay them off as soon as you can.
3. Credit Mix: Having a variety of accounts in good standing (such as credit cards and loans) can be beneficial for your score. This is because lenders want to see how you are able to manage different types of debt responsibly.