Asset Planning, Inc Blog
How Your Credit Score is Calculated
Your credit score is determined by the following:
-35% payment history
-30% amount owed
-15% length of credit history
-10% new credit
-10% types of credit.
The percentages are based on the importance of the five categories for the general population. For particular groups; for example, people who have not been using credit long, the relative importance of these categories may be different.
PAYMENT HISTORY is considered the most important variable. The next most important variable to watch are the AMOUNTS OWED. Having debt doesn't mean you are a high-risk borrower. Keep in mind that if a high percentage of your available credit has been used, it may suggest that you take on more debt than you can probably handle. This might reflect as a risk of you not being able to pay back your loans.
It is important to not max out your credit cards and keep a low credit utilization rate. Example:
If your credit limit is $5,000, don't charge more than a $1,000 if you want to keep your utilization rate below 20%.
Spend healthy and keep that payment history a priority!
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