What Is The Credit Score Breakdown
Below is a MRR and PLR article in category Master Series -> subcategory Personal Finance.
Understanding the Credit Score Breakdown
If you have any financial history, you've likely heard the term "credit score." Yet, asking what it exactly is or how it's calculated often results in varied answers. It's no surprise, as many find credit scores somewhat mysterious.
While the exact formulas used by companies that calculate these scores aren't publicly shared, understanding the general components can help you maintain or improve your score. Knowing what factors into your score is essential, much like understanding a subject in school is crucial to performing well.
Here's a breakdown of the elements that typically determine your credit score (with approximate percentages):
- Credit Mix (10%): This refers to having different types of credit, such as credit cards, a car loan, and a mortgage, and managing them well. It shows your ability to handle various types of debt.
- New Credit Inquiries (10%): Opening several new credit accounts in a short time can suggest you're overextending yourself, negatively impacting your score. However, checking your own credit reports doesn't count against you.
- Length of Credit History (15%): Those new to credit will have a lower score. However, a long history won't offset missed payments, as this factor is only one part of the breakdown.
- Amounts Owed (30%): This involves the ratio of your debt to your income. Ideally, your debt should be less than 25% of your annual income. A higher debt-to-income ratio can lower your score.
- Payment History (35%): This is the most significant factor. Consistently paying on time boosts your score, while even one late or missed payment can significantly reduce it.
As you can see, understanding your credit score isn't as mysterious as it might seem. It's about not borrowing excessively, avoiding numerous new accounts, maintaining a healthy credit mix, and paying all bills on time.
You can find the original non-AI version of this article here: What Is The Credit Score Breakdown.
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