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So what goes into a credit score, anyway?

Resources / February 25, 2020

Before you look at how to improve your credit score, it helps to know what goes into it in the first place.

If you are looking at buying a home soon, it’s a great time to start raising your credit score. It helps to know what goes into your score in the first place so you can prioritize the things that will have the biggest impact.

So here’s a quick rundown on what goes into your credit score:

Your payment history = 35%

Making on-time debt payments (student loans, car loans, credit cards, etc.) is the biggest single factor in your credit score, so one of the best ways to raise your credit score is to make payments on time. Even a few late payments can drive your credit score down.

A great way to do that is set up automatic payments in online banking. That way they happen in the background so you don’t have to remember them every month.

Total balance of credit used = 30%

If you are using 30% or less of your available credit, that’s a really good thing. If you’re using 50% or more, that will lower your credit score.

Work to get your credit card balances down below 30% of their total limits. That’s a quick way to raise your credit score.

Length of your credit history = 15%

Let’s suppose you’ve got your first job, your first place and you’re doing the whole ‘adult thing!’ That’s awesome, but you’re going to need to establish credit to build up a history.

The longer your history, the easier it is for lenders to evaluate what kind of borrower you are.

A good ‘first step’ is getting what’s called a secured credit card from a local bank or credit union. This is a credit card, but it’s tied to a savings account that you own.

Your credit limit will be the total balance you have in savings, so you can’t go hog wild, which is a really a good thing!

Mix of credit types = 10%

Along with a good history, a good mix of different kinds of credit will help your score. Credit typically comes in a few “flavors,” like these:

Closed-end credit:
Also known as a ‘term’ loan. This is where you borrow a certain amount of money and agree to pay it back over a set period of time, known as a term.

Open-ended credit:
Or ‘revolving’ credit. Credit cards and home equity lines of credit fall into this category.

Secured credit:
This is a loan for something valuable, like a car or a house. The car or house is ‘collateral’ for the loan, which means the loan is secured by the collateral. Don’t make the payments and the lender can repossess the car or house and sell it.

Unsecured credit:
There is no collateral on these types of loans. Personal loans and credit cards are good examples.

New credit = 10%

Finally, the most recent credit you have gotten in the past 3-6 months is the last major factor in your credit score.

Ready to learn more about raising your score? Let’s Talk!

De-mystifying the mortgage process is what we’re all about. We’d love to walk you through some simple and quick ways to improve your credit score. It’s totally free and only takes a few minutes on the phone.

Call us today at 855.222.5102