I just stumbled upon this article at Bankrate.com titled ‘How credit scores work‘. It seems a little old, but it’s new to me. The credit score powerhouse Fair Isaac (think FICO), is interviewed in the article, so that gives it some credibility. Here’s the skinny on what makes up your credit score, from most important to least:
35% – How you pay your bills (on time or not) – I don’t really have to worry about this one.
30% – Amount of money you owe and the amount of available credit – It’s not just how much debt you’re carrying, it’s how much of your available debt you’re taking advantage of. Another reason why it may not be a good idea to cancel unused credit cards.
15% – Length of credit history – Can’t really do much about this either. I thank my mom for letting me be an authorized user of her card in college. I stayed away from those credit card vultures at the bookstore – they can keep their cheap t-shirts. Although I guess it may have helped my credit.
10% – Mix of credit – Interesting, having both car loans, mortgages, and credit cards will help you. Well, I don’t have either of the first two. Shrug.
10% – New credit applications – Yep, gotta watch out for this one. I feel if you’ve got 3 or less in the last six months, the credit hit isn’t that bad at all. More, and credit card companies start to get nervous.
Some things that don’t count in your credit score surprised me: income, whether you’ve been turned down for credit, length of time at your current address, whether you own a home or rent. I guess that’s why they ask you all this on credit card appliation? Check out the article, I definitely learned some things.