What Determines Credit Score? Find Out What Impacts Your Credit and What to Keep in Mind

For those that don't know, your credit score is essentially a score that is determined through a complex mathematical model to reflect your financial reliability or credit risk. In other words, it's a number that indicates the likelihood of you repaying a loan or making payments on time.

There are a lot of factors that influence your credit score, but the two most important elements are how you pay your debts and how much debt you owe. So, if you have a history of making late payments on loans, a past bankruptcy, or a court ordered you to pay money in result of a lawsuit, your credit score will be negatively impacted.

FICO® Scores are the credit scores that most lenders look at to help determine your credit risk, and according to Fair Isaac Corporation that calculates the score, a group of aspects carries different weights to affect your credit score.

Payment History (35%)

Payment history is determined by accounting for the amount past due, bankruptcy or judgments, payment information, how long overdue payments are, and the time since any adverse occurrences. A particular red flag for lenders is seeing if an account went to collections, implying that you might not pay them pack.

Amounts Owed (30%)

The amount owned is factored by looking at the number of accounts with balances, the proportion of credit line used and proportion of installment loan amounts still owed, and the amounts owed on accounts individually and totaled together as a whole.

One thing to keep in mind is that having a balance of $0 doesn't make as much of a difference as you might think. Owing a small amount is best because lenders want to see that if you borrow money that you can pay it back.  

Length of Credit History (15%)

This includes the time since your accounts have been active and the times since your accounts have been open.

New Credit (10%)

This includes the number of and time since recently opened accounts and proportion to total accounts, number of and time since recent credit inquiries, and the re-establishment of positive history following past payment problems.

Types of Credit Used (10%)

This focuses on the number of various types of accounts, like credit cards, retail accounts, installment loans, mortgage, and more.

If you are worried that you might be discriminated against when it comes to your credit score, you can rest easy knowing that race, religion, gender, national origin, age, or any other information that has not been proven to predict future credit performance are not used to calculate your credit score.

Another aspect of credit scores that you ought to keep in mind is that credit scores change over time. They are meant to accurately reflect your current financial behavior and length of credit history. Accurate negative information can be reported for seven years, with some exceptions.

Bankruptcy can be reported for up to ten years and lawsuits or judgments last for seven years or until the statute of limitations runs out, whichever comes last. Lastly, information based on an application for a job with a salary of more than $20,000 can be reported with no time limitations. The main take away to all of this is that your credit score reflects just one moment in time and will likely not be the same even month to month.

Talk to an Expert Today!

At Liccardi Ford, we know that everyone has a different financial history, so we work with all types of scores to help you find affordable financing that meets your needs. Contact our finance department to learn more about your credit and what we can do to help!