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Credit scoring can be a mystery, but it doesn’t have to be. While there are many different types of credit scores that lenders use, there are some basic guiding principles to what determines your credit score. By knowing these factors, you can be more proactive in working toward having better credit and a stronger credit score.

Below are the five components that determine your credit score, specifically for a FICO credit score, based on the information in your credit reports.

Your Payment History

This segment is worth 35% of your FICO score points and is the most important component. Paying your bills on time will help you boost your score in this category, while late payments and collection records will hurt your scores. However, it’s important that you notice that while this category is worth 35% of the points, 65% of your score is determined by other factors. This means that making all of your payments on time is not the only thing it takes to earn a great score.

Your Debt

This section is worth 30% of your FICO score. It is also known as your revolving utilization percentage. All of your debt balances are factored into your score, but your credit card debt has the most impact. It is important to keep your debt balances low in relation to your credit limits in order to maximize your credit scores.

Your Credit Age

This category makes up 15% of the points in your score. This segment specifically measures how long you’ve had credit by looking at the “opened” dates on your accounts. The older your credit history, the more points you’re going to earn from this section.

Your Account Diversity

This segment makes up 10% of the points in your score. In order to earn as many points out of this category as possible you need to have a diverse credit history. Diverse in this case means a little bit of many different types of accounts including credit cards, car loans, student loans and mortgages. The only type of account that can be unhealthy for your credit scores is a finance company account.

Your Efforts to Get New Credit

This final section also accounts for 10% of the points in your scores. When you apply for new credit, a ”hard inquiry” is posted to your credit file by the lender you applied with. Having too many inquiries means that you are shopping excessively for credit and this can lower your scores.

Whether you’re trying to build your credit or maintain good credit, it’s important to monitor it regularly.  You can check your credit reports from all three credit reporting agencies for free once a year. And you can check your credit score using Credit.com’s Credit Report Card, which breaks out each of the five elements of credit reviewed above and assigns letters grades for each based on your performance. Keeping a close eye on your credit reports and scores can help guide your credit building efforts by showing you what you need to work on, and can also alert you to errors or fraud that would potentially hurt your credit.

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  • Reighn9

    I tried credit.com’s report card today for the first time. I’m confused & disappointed. I like your detailed explainations in each area but I’ve been tracking my credit very closely for the past 3 years. Which Experian score is this 632 which gives me a high risk? I had an Experian Plus score of 692 for June that gave me a medium risk. Monitoring my score range across all 3 credit bureaus from 2010 to present it has been 667-716 in the medium risk. Under payments it doesn’t seem like the negative impact of the lates diminished any with age. You see, Experian told me these negative acounts would be positive on August 08, 2013. Date of this report is August 09, 2013. I haven’t had any other late payments since 2006. Under inquiries 4 are listed yet you tell me inquiries for car shopping in a 14 day period count as 1. Why do I have 3 for car shopping on the same day counting as 3? I don’t understand “Account Mix”. I’ve been told I have 3 installment loans. I have a line of credit, a secured loan, & a car loan. It was saying 3 when I just had the LOC & SEC. That looks like a mix. I paid off my house in 1992. Why does everyone want me to take out a mortgage. All these reports claim I have too much debt but you want more for better credit? It makes no sense. Owning my own home should be good. I guess this report card goes to prove the old addage “you get what you pay for” and this score report was free. I still don’t know how I’m doing, I thought I was finally losing those old lates that have been #1 negative factor but I guess I was lied to again.

    • http://www.credit.com/ Credit.com Credit Experts

      Reighn — With so many different scores on the market today, it’s easy to be confused but please don’t let the difference in scores disappoint you. For one, when it comes to credit scores, it’s important to remember that each score and model varies so you have to make sure you’re comparing like scores to like in this case. We cover this topic in more detail here: 3 Reasons Why Your Free Credit Score Looks Wrong

      For the Credit Report Card, Credit.com is using the latest version of the VantageScore from Experian, which ranges from 300 – 850 and is a score that’s used by lenders. The Plus score is an educational score, and the range is 330 to 830 so the numbers are not going to line up as you’re expecting them to. Even if the score ranges were the same, the numbers still wouldn’t line up identically because the scoring models themselves are different. To read more about the latest VantageScore, and the differences in the new model, the following resources will help:

      Is VantageScore’s New Score Range Good for Consumers?
      FICO v. VantageScore: 5 Differences You Should Understand
      The Ultimate Guide to the New VantageScore

      In the end, though, when you’re working to improve your credit (and credit scores in the process), instead of focusing solely on the numbers themselves, it’s best to focus on the reason codes and focus your efforts there. It’s complicated, we know, and all the more confusing with so many different scoring models but hopefully this helps clear up some of the confusion.

      • Reighn9

        I mentioned areas besides difference in scores you did not address in your response. I do concentratre more on correcting the factors and checking my reports than the score. I knew there were different models-I didn’t know they were that different. It seems every time I correct a negative factor another is entered. The late payment entry obviously isn’t going away even though I’ve had 100% on-time payments on all accounts since summer 2006. It takes time to pay down accounts even though I always make more than minimum payment. I don’t what to do about all of my car inquiries counting individually, the reporting agencies won’t change it. Some factors that are listed I don’t know what to do about: lack of mortgage (I own my home clear since 1992) low credit limits, too many new accounts. One agency even complained because I had a card not reporting a limit. I’ve tried disputing hard inquiries and only been able to get one removed and the company did that for me. I just don’t know what to believe but I do like your clear concose explanations. They are better that ost.

        • http://www.credit.com/ Credit.com Credit Experts

          Hi Reighn –Credit scores can be very frustrating, especially when you’re trying to improve and see no results from your efforts, but hopefully we can help clear up some of the confusion and answer your questions. I think the key here is understanding what counts, how much it counts and why it counts.

          Before I dive into the details, I also want to point out that the order that the reason codes/score factors are returned are important — the first being where you lost the most points, the second where you lost the second to most points, etc. When you’re trying to improve your scores and want to get the best results, you’ll want to focus on the areas where you can make the most significant impact. In cases where your scores are suffering from old late payments, the only recourse is time — but adding new positive information will certainly help offset some of the damage by showing the scoring models that you’ve learned from your past credit mistakes.

          To quickly address your questions and frustrations on negative information, credit mix and inquiries:

          1. Negative information is never positive– “Experian told me these negative acounts would be positive on August 08, 2013” — this may have been misinterpreted but to explain, negative information is never, ever positive. The older negative information gets, the less impact the negative payment will have on your scores and with credit scores, it’s the most recent 24 months that carries the most weight. By the time negative information is due to fall off your credit reports, they don’t have much of an impact on your score by that point. The common misconception is that your credit score will dramatically improve the day negative information falls off your credit reports but the truth is, by the time it reaches that point, the item is no longer hurting your scores like it was initially. You can read more about this topic in Gerri’s piece here: The Bad Stuff Is Off My Credit Reports – So Why Didn’t My Scores Go Up?

          Other factors to keep in mind for negative/derogatory/late payments is the number of incidents (the more you have, the worse the impact), the severity of the late payments (one 30 day late is no where near as damaging as one 90 day late, or even a collection, for example), and how long ago they occurred (a late payment from a year ago will have a much more severe impact than a late payment from 5 years ago).

          2. Credit Mix — your credit mix factors in the different types of accounts you have and credit scores are looking a balanced mix. Having all credit cards, for example, can actually hurt you in this category and isn’t as helpful as having, say… a credit card and an installment loan, for example. As far as mortgages go, do consumers with mortgages earn more points in this category? Yes, they do — but that doesn’t mean you’re doing poorly in this category just because you don’t have a mortgage loan. Statistically speaking, empirical evidence shows that consumers with mortgages are less likely to default or go delinquent than consumers without a mortgage. Having said that, this doesn’t mean consumers without mortgages can’t earn high credit scores — there are plenty of consumers without mortgages that earn scores in the high 700s and even 800s. This is because credit mix is only 10% of the overall credit score. This is where it’s very important to that consumers educate themselves and understand what counts, how much it counts and consider ALL of the factors together — not just one.

          3. Inquiries. Not all inquiries are created equal and you’re right — credit scores are designed to group together inquires for auto, home and student loans as long as they all occur in a short period of time — (14 to 30 to 45 days depending on the scoring model), so that consumers aren’t penalized for shopping around for the best interest rates. Having said this, by law all of the inquiries will show as an application for credit so they’re going to show up on your credit report — but the score dedups them and counts them as 1. You may see three inquiries but if they all occurred in that 14 day period, they will only count as one. Another factor to keep in mind, inquiries are reported in your credit reports for 2 years but only count in your credit score for the first 12 months. You can read more about inquiries here:

          How Credit Inquiries Affect Your Credit Score
          Should You Be Worried About Credit Report Inquiries?

          I know this is a lot to digest, and because I’m answering your specific questions, it’s not exactly presented in the most logical order but to help provide a better understanding, Credit.com offers a wealth of educational resources that I think will help:

          The 5 Things That Affect Your Credit Score
          How to Rebuild Your Credit
          The Ultimate Guide to Credit Scores

          In the end, if you’re looking to improve your credit scores it’s important to understand where you are so that you know where want to be, but it’s also equally important to understand how scores work, what counts, and how much it counts. These resources should give you an excellent starting point.

          • Reighn9

            Thank you for taking the time to answer my questions and the excellent links to other articles. I’ve been doing my best to focus on the score factors in order, but when # 1 stays at “you have multiple accounts showing missed payments or derogatory descriptions” and all I can find are 2 accounts with late payments from 2006 and notes from Experian in the payment status-1) current, was past due 60 days. and 2) paid, 30 days late 2 or 3 times. These are the 2 accounts in question Experian told me would go “positive”. Those were their words when I asked about the date lates would be dropping off.
            I’m doing my best to lower my balances. My biggest problem is authorized users. I’ve already cut one off so that should help.
            Some of the other factors listed I can’t do anything about either like recently opened accounts and low credit limits. 2 years ago I opened some new accounts while starting to rebuild my credit. I monitor my credit reports regularly and subscribribe to a monitoring service. I found a lot of errors on my reports 3 years ago and have corrected most of them and a couple that popped up since. I want to learn as much as I can so I read a lot of articles. I’ve been given some bad advice though, about collection agencies, but I think I finally have that figured out.
            One day those late payments will drop off. How do I find out when if Experian was not correct? The companies’ records don’t go back that far-that’s who I was told to ask. August 08, 2013 was the date I was given.

          • http://www.credit.com/ Credit.com Credit Experts

            You mentioned that you received bad advice about dealing with collection agencies, which leads me to think there may be other items besides the late payments causing the top negative factor. Can you confirm that there are no collections, charge-offs, judgments, liens, etc. in your report?

            As far as when the late records will expire, assuming the dates are being reported accurately, the credit reporting agencies typically have systems in place that automatically remove them when they reach their expiration date. If for some reason the late payments have expired and are still showing up in your credit report, you’ll want to file a dispute directly with Experian to have it removed.

            For late payments (30, 60, 90+, etc.) they’ll expire and fall off your report when the late payment reaches the 7 year mark. Based on what you’ve just explained, though, it sounds like you have (1) 60 day late and (2 or 3) 30 day lates. Remember, with late payments, scores look at three key characteristics: frequency, severity, and recency. In this case, you’re taking a bigger hit here because it’s more than one incident. And if it’s more than one account, it means that you have more than one negative account to factor in too.

            You mention that the late payments will all expire on August 8th — but unless all of the late payments occurred at the same time (across three or four different accounts), I can’t see them all expiring at exactly the same time (on August 8th). Again, I can’t see what you see but to be sure, you’ll want to double check your credit report and the dates on when those late payments occurred so that you know exactly when they’ll expire. This will tell you exactly when these items will stop having an impact on your score.

            Having said this, if the late payment records are due to fall off on August 8th (which should have happened already), and those were the only late payment records (and there are no collections or other derogatory indicators), then that reason code should no longer be showing.

            If it IS showing up, and is still coming back as the top reason code, then there’s def. something in your credit report that’s triggering it — whether it’s a late payment, charge-off, collection, judgment, lien, etc. If you’ve pulled your latest report data, I’d go back through your report and look for any negative items (collections, charge-offs, late payments, settlements, tax liens, judgments, etc).

            In the end, if the negative payments are the primary cause for holding your scores down, which is what I gather from your explanations here, it’s going to take time before you’ll see significant improvement. Unfortunately, there really is no quick fix here. As you continue to add new positive payment patterns (and keep your balances on any credit cards as low as possible — 10% or less for the most score points), and avoid excessive applications for credit, your scores will continue to improve gradually over time.

          • Reighn9

            At the present time I have no charge offs, collections, liens, etc. on my reports. The past 2 “charge-offs” that showed on my report were in error and were disputed. Experian wouldn’t remove them but the original companies did after I wrote a letter. These accounts had been listed as partial charge-offs after having been paid in full in the store. The collection companies I mentioned having problems with were old accounts not on my reports, accounts I couldn’t remember, and and at the time I was trying to straighten out my credit. Threats from these agencies and my ignorance at the time caused me to pay some accounts that may not have been mine. When I ran into problems in the mid-2000s I lost my income and had someone who mismanaged what money I did get. Most of my accounts did not go to collection because I talked to everybody and paid something. Even those that did go to collection were finally paid.The 2 accounts in question-lates in 2006-yes they happened at the same time. Both companies I had also explained the problems to and both said they wouldn’t report the lates because I was trying, had a good prior payment record and I called, and would keep the the accounts open. One of the accounts is still open and current today, the acount was closed by the creditor shortly afterward. I do have high balances on some cards I’m still trying to pay down but I always pay more than the minimum payment on all my cards. I just bought a car last August and I know that loan is not doing me any good at the moment. I pulled all 3 reports in 2010 and have been working hard ever since to improve and learn about every aspect of my credit. I have been correcting errors. The only ones I can’t seem to fix often are hard inquiries. If I could just quit having emergencies so I could get my balances down I would be in great shape.

          • http://www.credit.com/ Credit.com Credit Experts

            Oh, that’s so good to hear. If there are no collections or derogs, then as the lates fall off, you’ll be in much better shape. You’re definitely on the right track and you’ve made tremendous progress so don’t beat yourself up too badly (emergencies happen to the best of us). As far as the inquiries go, remember — they remain on your credit report for 2 years but they only count towards your score for the first 12 months — after that, they won’t impact it at all. As the inquiries and late pays expire, and you whittle down your balances, you’ll see that significant improvement you’ve been working so hard for. And when you do, I’d love for you to come back and share your progress. (We love success stories.) 🙂

          • Reighn9

            Well, I just got an updated credit.com report. Last month my score was 632 and the note said “Lenders view you as being a high credit risk. You’re not far from having a really solid credit score. You need about 100 more points and you’ll be in the clear”. This month the late payments and the inquiries have gone away, my score is 685 up 53 points yet the note still reads “Lenders view you as being a high credit risk. You’re not far from having a really solid credit score. You need about 100 more points and you’ll be in the clear”. I’m still working on the balances, but I’m having another emergency so it’s going to take a little longer. I don’t know what to do to improve my “account mix”. I have a Mastercard, Visa, Discover, & American Express plus several retail store cards, an auto loan, a personal secured loan, and an unsecured line of credit with my bank. I refuse to take out a mortage when my home is already paid.

          • Reighn9

            You say above that “negative information is never positive” like the person at Experian told me it would be. I found a notation on an Experian credit report from 2010 on the open negative account right below the late payments “As of August 2013 this account is scheduled to go to a positive status.”

          • http://www.credit.com/ Credit.com Credit Experts

            Now I understand what you’re explaining — it’s the account that will go to positive status, not the actual late payment itself. To explain — negative items are still never positive, what’s happening is that the account with the negative payment will purge the negative payment item (the negative payment will fall off your report because it’s reached the 7 year mark) and because the account is still open and active, it will go from a negative account to a positive account … because the negative payment will no longer show up in your report. Confusing, I realize, but to clarify, a negative payment is never positive — it just eventually falls off the report so it’s no longer seen or counted against you.

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