Credit scores are calculated using information from your credit report to determine how much of a risk you pose to potential lenders. The five categories used to calculate your credit score are your payment history, the amount of debt you carry and how much credit is available to you, the length of your credit history, how many recent credit applications you have submitted and the types of credit you use.
Payment History
Payment history accounts for 35 percent of your credit score. This category looks at whether you have paid your bills on time, missed payments and defaulted on any loans.
Debt Levels
Your level of debt counts for 30 percent of your credit score and factors in how much you owe as well as how much credit you have available to use.
Length of Credit History
The amount of time you have had credit accounts for 15 percent of your score. The longer you have used your credit well, the more trustworthy you appear to lenders.
Applications for New Credit
The number of applications for new credit counts for 10 percent of your score. This includes applications for credit cards, auto loans and home mortgages.
Types of Credit Used
The variety of credit types that you use counts for 10 percent of your score. Individuals who have had experiences with multiple types of credit are seen as less risky than people who have used only one type of credit.
Advantages of a Higher Score
A higher score will make you more likely to be approved for new credit, such as a mortgage or credit card. A score of 720 or higher is usually good enough to qualify for the best interest rates.
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