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There’s a good chance you’ve heard about “credit scores” – those three-digit numbers commonly used by lenders to predict the likelihood that you will pay back a loan on time. Your credit score is often a driving factor in determining whether a lender will extend you credit and, if so, at what interest rate. Usually, the better your credit score, the lower the interest rate you’ll be offered.
But what components actually make up your credit score? Let’s break it down.
What Components Make Up My Credit Score?
The most commonly used credit score is the FICO score – created by the Fair Isaac Corporation. The main factors that influence your FICO credit score can be broken down into five different categories:
1. Payment History (Total Impact: 35%): This is a reflection of whether your prior bills were paid on time, how many were sent out for collection, and any bankruptcies.
2. Debt Amount Owed (Total Impact: 30%): This refers to the amount of credit utilized compared to the amount of credit available.
3. Length of Credit History (Total Impact: 15%): The longer the credit history, the better it is for the overall credit score. Credit history length refers to the age of a specific credit card or other line of credit.
4. New Credit/Inquiries (Total Impact: 10%): An inquiry is when a lender obtains your credit report from one of the bureaus after you request credit from them.
5. Types of Credit (Total Impact: 10%): This refers to the mix of credit types on your account.
Learn More About Understanding Your Credit Score!
We’re sure there’s more you’d like to know about credit scores! Head over to the College Ave Student Loan’s blog to find out more about different types of credit inquiries, how they are generated, and whether applying for more than one loan will affect your score. Have additional questions? Post a comment below!