Credit Score Information – 5 Factors the Bureaus Look At

Your credit score can force you to pay thousands of dollars or save you thousands of dollars a year. It is a three digit number that has a huge influence on your life.

The formula for calculating your credit score is a mathematical equation. This equation is not released to the public out of fear that people will use the information to make sure they have a good credit score.

You would assume the credit bureaus would want people to have a good credit score. However the credit bureaus customers are the lenders. It is in the lenders interest for the borrower to have damaged credit. This way they can charge higher interest rates and earn a bigger profit.

Below are the five factors the credit bureaus use when calculating your score. You will also find the approximate weight that each factor carries in the equation.

1. Payment History (40%)

This is the most important. Your credit report shows your balance, your payment history, your credit limit and the minimum payment.

If you have a credit card that consistently stays at the limit and you are only paying the minimum, you can assume this is not helping your credit score. However if you can make large payments towards your balance it will give your score a bump.

This is also where negative listings will be taken into account. You should remove any negative listing on your credit report. This can be done by either disputing the listing with the credit bureau or settling the debt.

I suggest trying to dispute the listing first. If the listing is verified then settle with the lender and in exchange for your payment get them to agree in writing to remove the negative listing from your credit report.

2. Ratio of Credit to Debt (30%)

This is how much credit is available to you that is not being used. Is your credit card at the credit limit?

If you can show the credit bureaus that you have available credit it will help your score. I suggest keeping a credit card balance at 10% of your limit. This helps because you are showing that you use your credit and you use it responsibly.

3. Pursuit of New Credit Lines (10%)

How frequently is your credit checked? If it appears that your credit is being checked constantly then your score will be negatively impacted.

Your credit report shows how often your credit is run. Thus you should not trade in your automobile every 3 months or constantly make purchases requiring a credit check.

However the threshold of this varies between credit bureaus. There are a certain number of inquiries that credit bureaus expect to find on your credit report.

Just try to avoid making a lot of purchases using your credit. There are people that switch phone plans and buy cars multiple times in a year and this will hurt your score.

4. Credit Experience (10%)

You should not worry about impacting this factor. It simply shows what type of purchases you have made.

Meaning is your credit used to finance a mortgage, student loans, credit cards, auto loans, and etcetera. The more diverse your purchases the better however this factor will not make or break your credit score. Thus don’t worry about this factor.

5. Length of Credit (10%)

How long has your credit been in use? Did you just recently make your first purchase with your credit?

Do not worry about this factor. If you are new to the world of credit you can still have a great score.

In sum, only worry about the first two factors listed. However for your own knowledge the other three are looked at when your score is calculated.

If you take care of the first two factors then your score will be high. With a high score you can take advantage of rewards, automatic approval and save thousands with low interest rates.