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Good to Know: The 5 Criteria That Determine Your Credit Score

By Len Penzo

credit card basicsYour credit score is a financial report card that tells lenders how risky it is to do business with you. Scores range from 300 to 850.The higher your score, the more likely you are to pay back a loan — and that means that lenders will be more willing to offer you bigger loans and lower interest rates.

Typically, your credit card is based on the following criteria:

Payment history. This includes how often you make your payments on time, the number of late payments, and how late they were. It also takes into account liens, judgments, collections, and foreclosures.

Available credit. This portion of the calculation considers how much you owe, as well as the overall ratio of your total credit limit versus your outstanding balance. While it’s good to have a small balance with a lot of available credit, it’s not so good if you you’ve used all of that credit. This makes you a higher risk because if you get into financial distress you’ll lack a credit cushion that could bail you out of trouble.

Overall credit history. In particular, how long you’ve been using credit and how long to you keep credit accounts in general.

New credit. Applying for too much credit at one time is interpreted negatively because it can mean that you’re in financial trouble.

Forms of credit. The more varied the forms of credit you have and use responsibly, the more favorable for your credit score.

Photo Credit: GotCredit

September 24, 2020

Comments

  1. 1

    Kenny says

    Great article. This was very helpful!

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