It can even help you get perks such as reduced rates on your insurance and get accepted to exclusive rewards programs for frequent flyer miles.  How would you like to know the secret of how your credit score is calculated?

How Your Credit Score Is Calculated

Credit reporting companies use a complicated formula to determine a score that ranges from 0 to 850. I am going to walk you through the five different factors that help credit companies determine your credit score. Once you understand each of the factors that determine your credit, you will be able to quickly make decisions to raise your credit score and fix it. You will also be able to easily maintain your finances to keep your score high!

Payment History

The first and most important category is payment history. Credit companies generally determine about 35% of your score based on your payment history. That's just as simple as it sounds. Make your payments on time and never let your payments be more than 30 days late. Otherwise, it will affect your score. Approximately 35% of your score is based on your payment history. That's why it's so important that you make your payments on time.

Debt to Available Credit Ratio

The second factor that they use to determine your credit is your debt to available credit ratio. Credit companies look at the total amount of credit available. They then look at what percentage of that available credit you are using. Look at all your revolving credit lines such as credit cards, lines of credit, and store cards. The best place to be is between 0 - 20% but you absolutely want to keep them below 50% or credit companies will significantly ding your score. Credit companies like to see that you are responsible on how you use your credit and that you pay it off regularly.  

Other Factors In Calculating Your Credit Score

About 35% of your credit score is determined by a couple of factors including the length of your credit history which is essentially how long you have had active open credit accounts, The number of accounts you have open. Having a number of credit cards or revolving accounts with low balances is excellent for your score, and one of the most common factors of high scores along with paying your bills on time.

If you are looking to repair your earn credit make sure you get a copy of your credit report, negotiate settlements on all your charge off’s, open some credit accounts using secured credit cards if you have to, and pay down your balances and keep them below 20% of your credit limit. If you pay your bills on time and follow these simple steps you will be on your way to a rating or 700+.