credit ratingA credit score can seem like a complicated and sometimes arbitrary number, but if we break down what makes up a credit score, we can see how to help raise the score. And three to five points can make a difference in the type of financing available to you.

A credit score is made of five key factors:

Payment History 35%

This is can be the most obvious one. It’s what we’ve always been told. Make your payments in full and on time. Making more than the minimum payment is also helpful, otherwise “you could be paying your credit card company until you die-literally,” according to credit expert, Gerri Detweiller.  Of course, this one can be difficult at times when unexpected circumstances occur.

Debt Level 30%

This one is a bit more complicated. Creditors look at the amount that is currently available to you and compare it to what you owe those creditors. Creditors like to see a ratio of about 30% owed to what is available. And less than 50%. If you have a credit card with a $1000 credit limit, a balance between $200-350 is good. If you have credit available of $5,000 three different credit cards, and you owe only 30% it is best to have the 30% spread over the three cards instead of having one close to being maxed out while the others have a zero balance. The reason this is important to creditors is that it shows how you manage credit.

Length of Credit History 15%

Creditors look at a long credit history more favorably than a short one because it is a better indicator of your spending habits. This is why it is better to leave accounts open than to close them.  It is tempting to close an account once it has been paid off, but sometimes an account that you have had for a long time that carries a low balance, will boost your credit score more than a new credit account.

Inquiries 10%

This one is the most shocking. Every time a creditor pulls your credit report, it can affect your score up to five points. Inquiries stay on your credit report for up to two years, although creditors are most interested in the last year. A lot of inquiries can be interpreted by creditors as financial trouble, even though you may just be trying to get the best deal on a credit card or couch. This is where knowing your credit score before shopping can be a big help. It is important to note, that the consumer credit report is different than the one a lender may obtain. See our October blog for more information.

Also, according to FICO, the leading credit score for most lenders, if you are looking to make a big purchase such as a home, car, or applying for student loans, you are allowed 30 days to shop around for the best rate. Auto loans and mortgages are two of the biggest purchases for consumers, so FICO doesn’t even consider the last 30 days of credit inquiries from these types of lenders. This means that you should do a lot of research first to minimize the decision making process. It is okay to have auto, mortgage, and student loan lenders pull your credit report as long as it happens within 30days.

CCP Web Design Staff Writer,

Kelly Bladl