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What Factors Determine your Credit Score?
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Student Contributor
Posted May 3, 2016
There are five different criteria that make up a credit score: New credit (10%), types of credit (10%), length of credit history (15%), amounts owed (30%), and payment history (35%). Each one focuses on a different part of credit and is reported to the credit bureaus to help make up your score.
New credit (10%)
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Your score considers how many new accounts you have opened and applied for in recent months. If they see you have opened multiple accounts recently, this will have a negative effect on your credit score. Opening and closing numerous accounts in a short period of time shows inconsistency in your credit and often means the borrower is planning to take on new debt in the future.
Types of credit (10%)
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Although a small percentage of your credit score, creditors look at how many different types of credit you have and how many total accounts are under your name. These different types of credit include credit cards, store accounts, and loans, such as auto or mortgages.
Length of credit history (15%)
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This piece gets better with time, as it takes into account how long you have been using credit and the age of your oldest account. Being a college student, you might not have much credit history and that is fine as long you make payments on time. The best way to help build this area of your credit score is to keep credit cards open, even if you have stopped using it.
Amounts owed (30%)
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Amounts owed accounts for 30% of the total make up of your score, which is why it should be closely monitored. The focus is largely on determining how much of your available credit you have used, how much you owe on accounts, and how much you owe in total. This is why it is best to keep balances carried from month-to-month low (about 20% of your monthly limit) and to limit the amount of debt you hold. Maxing out credit cards and overloading on debt is going to hurt this piece of your credit score, and greatly effect it as a whole.
Payment History (35%)
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Making up a majority of your credit score, payment history is the single most important factor when building credit. This benefits from making sure all of your bills are paid on time. Missing payments or making late payments are going to negatively affect your credit score. Any accounts that have gone to collections will also hurt your score, as it shows future lenders that you might not pay them back. If there is one aspect to focus on when building your credit, it is this one.
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