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What makes up your credit score?

There are five major factors that determine and make up an individual's credit score. In this post, we are going to share with you what those five factors are and how it works to determine your credit score.

  1. Payment History is 35% of your overall credit score. This is an indication of how timely you pay your bills and how it affects your credit score more than any other factor. Paying a credit card off to a zero balance at the end of each month is the most ideal.

  2. Level of Debt (Utilization Rates) is 30% of your credit score. Specific credit scoring calculations, like the FICO score, look at a few key factors related to your debt. Some of those factors are the amount of debt you have overall, the percentage of your credit card balances to your credit limits (this is called utilization rates), and the relation of your loan balance to the original loan amount (how long you've had the loan).

  3. Age of Credit is 15% of your credit score. This takes into consideration your oldest accounts you have, the youngest accounts you have, and the average age of all of your accounts combined.

  4. Types of Credit is 10% of your credit score. There are two major types of credit accounts. The first one is revolving accounts, which are credit cards. The second is installment loans. Installment loans are essentially a debt that has a term with it, such as a personal loan, car loan, mortgage. You take the loan out for a specific period of time. (ex. 24 months, 36 months, 48 months, etc)

  5. Inquiries are 10% of your credit score. One or two inquiries won't hurt your credit score terribly, but over the course of 12 months, if you have a lot of inquiries, that can have an impact to your credit score.

Soft inquiry vs hard inquiry

A soft inquiry is when a creditor, lender, financial agency goes to one credit bureau to check your credit. A soft credit check will not impact your credit score, as no inquiry should be made. A hard credit inquiry is when a creditor, lender, financial agency goes to all three credit bureaus at once for a credit check. That will impact your credit score by a few points and will create an inquiry on your credit report.

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