What is Credit Score?

What is credit score is a question asked over 2 million times a month. And with good reason.

Your credit score is going to determine not only whether or not you can get credit, but also how much interest you are going to pay. So it makes sense to work to put your score at a high rating.

Instead of asking what is credit score ask how can I improve my score.

1. The most important part of your credit score is based on your history of making payments. Believe it or not, this counts for a whopping 35% of your overall credit score. If you are noted for making payments on time, this is good news.

Unfortunately, if you occasionally forget to pay a bill and are regularly a few days late, it's bad news for your rating.

Now different creditors have different policies as to when they report a late payment to the credit agencies. However, you don't know what that threshold is, so you need to be paying those bills and loans on a timely basis --- every month.

2. Your variety of credit adds up to 10% of your score. Having a mortgage, car loan, credit card and perhaps a store account lets the agencies know you are able to handle a variety of credit options. That's a good thing so long as you have been paying all these loans on time.

3. 15% of your credit score is determined by how long you have had a credit history. Naturally, how you have managed that credit over the years will improve your score.

4. Next is the total amount you owe. This factor accounts for 30% of your score. The total amount you owe is compared to your income in what's known as the "debt to income" ratio. The lower that number, the better your score. Make an attempt to keep your total debt at 25% or less of your annual income to have the best effect on your rating.

5. New inquiries into your credit are a warning sign that you may be overextending yourself and can account for 10% of your total score. The one exception is if you are the one personally checking your credit report.

What is credit score is a valid question and hopefully you now have a better understanding. Knowing how much weight is given to each portion of your score can help you decide where to first focus your efforts when you start trying to improve your credit score.

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