The importance of credit scores have risen drastically in recent years, and many people hear about how they need to protect and check their credit score annually, but not everyone knows what actually makes up their credit score.
What is a credit score?
Basically, your credit score is the likelihood that you will pay back your loan. A credit score is a number generally ranging from 300-850 that’s generated at a lender’s request. The score, which is calculated through a specific formula that takes into account items on the credit report and other factors, attempts to rate the likelihood a consumer will honor future debt payments. There are five items that make up credit score:
- Payment history – Makes up 35 percent of your credit score. Basically, if you pay your bills, your doing yourself a good service.
- The amount you owe – Makes up 30 percent. The Credit Bureau looks at revolving credit cards. This amount needs to be below 50 percent or else it starts to hurt your score.
- Length of Credit – How long you have had any line of credit makes up 15 percent of your credit score.
- New credit – Any new lines of credit make up 10 percent of your score.
- Types of credit – The different credit cards or loans you may have in your name.
How can I see my Credit Report?
There are a bunch of websites that offer free credit reports, but Annualcreditreport.com is the one where you can genuinely get a copy for free. We suggest that you check it at least once a year, as different situations could arise where your credit report is affected and you need to keep track of them. Figuring out your score on your own is kind of difficult, but keeping your bills low always helps ensure a good score, as well as making all of your payments on time. Also, keep in mind that tiny blemishes on your credit score can hurt your score for a long time. As they say, “it takes a lifetime to build good credit and you can ruin it in a minute.” This is unfortunately very true. Some websites offer an option to estimate what your current score is. These show what will happen to your scores depending on certain situations, and is a good representation of what you can expect your credit score to look like.