Based on five key factors, credit scores are mainly used by lenders to determine if you’ll get approved for a loan, and, if so, at what interest rate. It’s important to understand the specific activities that impact each factor. This way you’ll know if you need to take steps to improve or maintain your score. This infographic shows you how your credit score is calculated.
Payment history: 35%
Your score factors in your payment history on current and past accounts, as well as any public record and collection items.
Quick tip: Boost your score over time by enrolling in automatic withdrawals to ensure timely bill payments.
Amounts owed: 30%
Your credit score looks at your overall credit use on open-end loans (e.g. lines of credit and credit cards) – the ratio of your credit balance to your credit limit. If your balance is $250 and your limit is $1,000, your ratio is 25 percent.
Quick tip: Keep your balances consistently below 30 percent for a better credit outlook.
Length of credit history: 15%
Your credit score considers how long your accounts have been open and how long it’s been since your accounts have had activity.
Quick tip: Don't close old credit card accounts. It could hurt your score.
New credit: 10%
Opening multiple accounts in a short span of time represents greater risk. It's important to be strategic when shopping for a new loan or credit card. You don't want your report to show you're constantly applying for credit.
Quick tip: Avoid opening multiple credit accounts during a short time period, to keep your score high.
Credit mix: 10%
Your credit score also considers the different types of credit accounts you have: credit cards, retail accounts, installment loans and mortgage loans.
Quick tip: Make sure you have different types of credit accounts for a possible score boost.
How can you keep track of your credit score?
Now through April 2021, you can get a free copy of your credit report online, once a week from each of the three major credit bureaus — Equifax, Experian and Transunion.
Visit annualcreditreport.com to view and download your credit report. Once on the annualcreditreport.com site, you'll need to complete the request form, select your reports, and verify your information for security.
The change from the standard, once per year, quarterly review to a weekly check comes at a time when COVID-19 has made it hard for many families to keep up with paying bills or to get approved for new loans. So, it's helpful to monitor credit reports more often to ensure your accounts reflect payment arrangements from creditors and to confirm there is no fraudulent activity.
The advice provided is for informational purposes only. Contact your financial advisor for additional guidance.