What Goes Into Your Credit Score?

One of the most important figures that go into your overall financial health is your credit score. Most people never think about what exactly their credit rating is until they need to, either because they are trying to make a large purchase such as a house or car, or because they are trying to take out a small business loan. So, it’s an important number, but how exactly is it determined?

To put it simply, your credit rating is basically your entire financial life boiled down into a single number. It is an important number because it is an extremely useful indicator to lenders of how much of a risk they are taking when they give you a loan. When determining your credit rating, there are several contributing factors.

The main component of your credit score is your payment history, as in how prompt you are when it comes to making your payments. If you have a history of late or missing payments, your credit rating will understandably drop, and it will drop even more every time a payment is late. If you are trying to take steps to improve your credit score, the best thing that you can do is make sure that you are never late on a single payment, even if you can only make the minimum payments.

The next component of your credit score is the total amount of credit that is available for your use. In addition to the sum of the credit limit of each line of credit you have, the overall percentage of that total that is used also goes into it. Suppose that you have a huge amount of credit available, but that you are only using a small portion of it. This tells lenders that you are a responsible customer, which makes them more likely to approve you for any loans you may be interested in taking. If you want your credit score to remain high, try to not use any more than 50% of your total available credit.

The rest of your credit score is based on the different types of credit that you have, as well as how long those lines of credit have been open. If you have quite a few different kinds of credit lines open, such as a store credit card, a car loan, a cheap unsecured loan, and a student loan, your credit score will probably be higher than if you only had credit cards.

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