How to Understand Credit Rating Points

Every consumer who has a credit file also has a credit score that is compiled by adding up a number of points based on his credit rating. While there are actually different types of scores, the Fair Isaac Corp. score, commonly known as a FICO score, is the most commonly used number. While the exact formula by which it is calculated is not public, it is influenced by your credit rating points in several areas, such as bill-paying history and available credit. If you understand these points, you can use them to better understand your credit score.

Instructions

1

Obtain your current FICO credit score from a free website such as Credit Karma. To understand your credit rating points, it helps to know your score so you can work backwards and evaluate the various factors that go into its calculation.

2

Obtain your current credit report from at least one of the three major credit reporting bureaus. The three major bureaus (Experian, Equifax and Transunion) are all required to give you a free copy of your credit report once each year. You will need at least one of these reports to get the information that will help you understand the credit rating points that went into calculating your credit score.

3

Check the section on bill paying and note whether your credit report contains any negative information, such as late payments and collections. According to Bankrate, the way in which you pay your bills accounts for 35 percent of the credit rating points that make up your score.

4

Tally up your available credit on all of your open accounts, even if you are not currently using them. Bankrate warns that if you have too much available credit, it can negatively impact your credit rating points because potential lenders will be afraid that you might use your available credit and rack up debts that you cannot afford to pay. Bankrate says that available credit accounts for 30 percent of your credit rating points.

5

Calculate the amount of time you've had your oldest accounts. Bankrate says that your credit rating points are boosted by old accounts that you've held for a long time with the same lender or credit card issuer. The length of your credit history counts for 15 percent of your credit rating points.

6

Count the different types of credit accounts to see how many you have of each type. Bankrate says that lenders like to extend credit to consumers who have a wide range of accounts. If your credit is spread out between installment loans and revolving credit cards, you'll get more credit rating points. This mix contributes 10 percent to your credit score.

7

Count the number of recent inquiries that are listed on your credit report. Every time you apply for a loan or account and the potential lender pulls a copy of your credit report, it will be noted. If you have a large number of applications in a short period of time, lenders will worry that you may be desperate for money or that you are planning to run up bills prior to declaring bankruptcy. Too many applications will bring down your credit rating points. This accounts for 10 percent of your points.

8

If your score doesn't seem to line up with these five areas, recheck your credit report and see if there is any erroneous negative information. If there is, you can dispute it with the credit bureau. If the credit bureau cannot confirm it, it will be removed and your credit rating points will go up.