What Contributes to Your Credit Score?

Each individual consumer has his own credit score as reported by three major credit reporting bureaus. Based on the Fair Isaac Corp. scoring model, each bureau reports what are referred to as FICO scores. Each score offers creditors a glimpse of your individual credit worthiness which is used in loan decisions and the establishing of rates and terms.

Credit Score Basics

Equifax, Experian and TransUnion are the three major credit reporting bureaus. Each issues its own credit score with varying scoring models. However, all three are based on or modified from the FICO scoring model. Credit scores are not only important when applying for credit, but many insurance companies also use credit scores in assessing insurance risks and determining premiums. Credit scores are always changing so your score on one credit check could go up or down at the next check based on your credit activity.

Credit History

Ultimately, a top predictor of your current creditworthiness is your previous credit behavior, at least if you believe the FICO scoring model. According to the MyFICO website, your payment history accounts for 35 percent of your FICO credit score and your length of credit history is another 15 percent. Thus, about half of your score is your consistency in making on-time payments and using credit responsibly for a period of years. Some financial advisers encourage young people to get a credit card early to build credit history at a young age.

Debt Utilization

Another key consideration in your credit score is how much debt you currently have relative to your available debt, or debt capacity. Debt utilization is the percentage of your available debt currently in use. Other related considerations are the total number of debt accounts in use, the types of accounts with balances and balances in proportion to original loan amounts. According to MyFICO, "Amounts Owed" accounts for 30 percent of your score.

New Credit

Though it is a relatively small proportion of the total score, borrowers need to know that new loan applications and credit checks can influence credit scores. MyFICO indicates 10 percent of your score is based on "New Credit" factors. This includes new credit inquiries, recency of credit inquiries and the number of new accounts opened. The important point in this category is to avoid unnecessary credit checks through too many credit applications.