What Makes Up A Great Credit Score

Posted on | January 24, 2012 | No Comments

Do have a bad credit score?  Have you even checked your credit score lately?  In most cases what typically happens is that most people never tend to check their credit report until they need it.

What’s even more astounding is that most people don’t know that their are several types of credit scoring systems.  In fact the best known scoring system most lenders use is the FICO scoring system and in order to improve your credit score you need to know what factor determine your score.

Open Credit Utilization

One of the first big factors that determine your credit score is how much debt is on your current open credit lines.  For example, in my case I have around $8000 in open credit available to me and only have around $850 of total debt on my credit cards.

When you divide the total debt owed over the total amount of credit available it will tell you how much of your current credit is in use.  In my case I have around 11% of my credit in use which is very low but helps out my credit score a bunch.  In fact, the lower you can keep this number the better.

Credit Age

The next thing that you need to consider is the age of your credit.  When it comes down to it the older your credit is the higher you will score.  For example, if you have 3 credit cards and one is 10 years old, another is 5 years old, and the other is 1 year old, the average age of your credit would be around 5.33 years old.

However where people tend to get into trouble is that they get rid of an older card in a lot of cases to get something newer with better benefits and end up canceling the older card.  The problem with this is that it can severely lower the age of your credit.

As in the example above it you were to cancel out your oldest card of 10 years your average credit age would drop to 3 years, thus lowering your score.

On Time Payments

The last thing you need to consider is the amount of on time payments.  In fact this is such an important part of your credit score that it ranks just under filing for bankruptcy as one of the worst ways to destroy your credit.

That’s why I always suggest that you make all payments on time with your debts even if it’s just the minimum payment.  With one missed payment on your record it could be enough for a lender or bank to decline you for a mortgage loan, or credit card.

Final Thought…

As a final thought it also matters where you get your credit score from as well.  With all the different scoring model out there the best place to go to get your score from is AnnualCreditReport.com because it goes off of the FICO scoring system.  To learn more about Annual Credit Report check out this review to get started.

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