If you have watched TV or listened to the radio any time during the past few years, you've probably seen or heard commercials trumpeting the benefits of checking your credit score. A credit score is a number that lenders calculate based on various information about your credit history, that they use to decide whether to approve you for new credit or loans. Understanding the types of credit information that lenders use to calculate credit scores can help you maintain a good credit score and get loans for things like buying a home or a new car.
The amount of debt that you carry is one of the most influential pieces of credit information in determining your credit score. According to the Fair Isaac Corp., about 30 percent of your credit score is based on your total debt balances, such as the amount you still owe on loans and your balances on credit cards. The ratio of your credit card balance to your credit limit also weighs on your credit score; if your balances are close to your credit limits, it can hurt your credit score.
Bill-Paying Track Record
Lenders want to give credit and lend money to people who have a track record of making bill payments on time. If you have missed payments in the past, it is a red flag to lenders that you might miss payments again. Information about your bill payment history makes up about 35 percent of your total credit score, so it is essential to keep on top of your bills if you want to maintain a good credit score.
Opening and Applying for New Accounts
Creditors use information about new accounts that you open and new credit applications to determine about 10 percent of your credit score. At its core, a credit score is just a representation of the amount of risk you present to a lender. When you open new credit accounts, take on new loans or apply for new credit, lenders can't be sure how you will react to the additional expense of the new accounts, so they tend reduce your credit score to account for this increased uncertainty.
Length of Your Credit History
The length of your credit history -- how long your credit accounts have been open and the frequency with which you use the accounts -- accounts for about 15 percent of your credit score. A longer credit history gives lenders more confidence about the type of borrower you are, so if you have been responsible in the past, a long credit history can boost your credit score.