Your credit score is built on five basic elements. The following will give you a breakdown and help you to understand what each element is comprised of.
35% Is Payment History
This portion of your credit report consists of the number of accounts that are paid, how many are in collections and any negative public record (Liens, judgments, and settlements). It also shows all delinquencies, and past due items.
30% Is The Amounts You Still Owe
This portion of your credit report consists of all account balances, and the types of accounts carrying an existing balance. It also consists of how much of your line of credit has been used. What is the total available credit you have open? The amounts that you owe verses the original balances on the accounts are examined. This area also shows how many zero balance accounts you have compared to the total number of accounts you have.
15% Is The Age Of Your Credit History
This portion is to track how long you have carried credit that reports to the three main bureaus, how long your accounts have been open, and how much time has passed since your last activity. The longer you show a good history equals a higher credit score.
10% Is The Types Of Credit You Use
This portion is based on the total number and types of accounts that you carry (Home loans, credit cards, cars…). If you have a variety of different types of accounts, your credit score tends to be higher. You are also targeted for many credit offers. Keep in mind that it’s the variety. Too many of any type of credit option, will actually lower your score (Too many credit cards, for example).
10% Is Any New Credit
This portion shows any new lines of credit, credit cards, loans that you recently opened (Recently usually indicated within 12-18 months). This area also shows the amount of time since your last credit inquiries. In this area it will also reflect if you have started to re-establish a good credit history after past credit problems.
To make a long story short, your score is built on about 65% payment history and what you still owe. By working on those two areas, you are likely to see the largest improvements in your credit report. If there are any mistakes in those areas, it can have a very negative effect. This is why it’s important to make sure you check your credit report regularly.