Your credit scores are calculated from information on your TransUnion®, Equifax® and Experian® credit reports. And your creditors are constantly updating your accounts with one, two or all three credit bureaus. It’s important to understand what drives your credit scores, which actions may be helping or hurting – and why.
Are your payments typically on-time or late? What about your account balances? Have you pushed your limits or kept them steady?
Your scores can change with each new piece of information reported by your creditors. Certain actions – such as closing old credit cards or signing up for a new cell phone plan – are among the factors that can make or break your scores.
Your credit scores are calculated using five factors: Payment History, Outstanding Debt, Credit Mix, Credit Age and Credit Inquiries.
Together, they provide a complete view of how well you manage your credit . Be aware that not all factors carry the same weight in calculating your scores.
Here’s a general breakdown of how much each factor counts:
- Your Payment History – 40 percent: On-time or paid-as-agreed is the goal. In fact, even one 30-day late payment remains on your credit reports for seven years.
- Your Outstanding Debt – 35 percent: The amount you owe, and more importantly, how much of your credit is in use, is key. High credit limits and low balances boost scores.
- Your Credit Mix – 10 percent: Credit cards, auto loans, mortgage and personal loans are the mix of installment and revolving accounts that lenders look for in this category.
- Your Credit Age – 10 percent: Age matters and older is better! Credit accounts you’ve kept in good standing for years can score you points. Creditors can see how well you manage your debts over time.
- Your Credit Inquiries – 5 percent: Knowing who’s checking your credit – and how often – helps lenders determine whether or not you are “credit shopping.” Multiple inquiries within a short time frame can be a red flag, however, checking your own credit will NOT harm your scores or your chances with lenders.
To avoid unwanted surprises, regularly check your credit reports for new information. If you’re not already monitoring your credit, consider it. Use credit monitoring to detect and correct errors, track your progress – and get alerts about changes or suspicious activity that may pose a threat to your identity and credit.