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Your credit scores are deliberated from various credit data in your credit report. This data can be collated into five categories; Payment History, Amounts Owed, Length of Credit History, New Credit and Types of Credit Used. Each plays an important role in determining your credit score. No one piece of information alone will determine your score.

Here is a percentage breakdown of a FICO score:

Payment History consists of account payment information on specific types of accounts such as credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc. It also includes the appearance of unfavorable public records such as bankruptcy, judgments, suits, liens, wage attachments, and any collection items, and/or delinquency (past due items). Your payment history shows the number of past due items, adverse public records or collection items on file, and how recent they are. Along with the severity of delinquency (how long past due), the amount past due on delinquent accounts or collection items is also shown in your payment history. You would also be able to determine the number of accounts paid as agreed in your payment history. In order to keep good payment history, pay your bills on time. If you have missed payments, get current and stay current. Collections and delinquent payments have a major impact on your score so the longer you pay your bills on time, the better your score. If you pay off a collection account, be aware that it will not be removed from your credit report. It stays on your report for seven years. If you're having trouble making your payments, contact your creditors and make a payment plan. This will not improve your credit right away, but you can begin to manage your credit and pay on time, and your score will get better over time.

Amounts Owed will show the number of accounts with balances, and the amount owing on these accounts. It will also show the proportion of credit lines used and the proportion of installment loan amounts still owing. You should pay off debt rather than moving it around. High outstanding debt can affect your score, so keep your balances low on credit cards and other revolving credit. The most productive way to improve your score in this area is by paying down your revolving credit. In fact, having fewer open accounts and owing the same amount may lower your score. Do not close unused credit cards or open a number of new credit cards that you don't need. This could backfire and actually lower your credit score.

Length of Credit History includes the time since accounts opened, and the time since account activity. If you have only been managing credit a short time, don't open a number of new accounts too quickly. New accounts could lower your average account age, and this will affect your score if you do not have other credit information. Rapid account escalation can look very risky, especially if you are a new credit user.

New Credit is made up of the number of recently opened accounts and recent credit inquiries. It also includes the time since recent accounts opened and the time since credit inquiries were made. Reformation of positive credit history following payment problems you had in the past will be revealed in this category also.

Scores differentiate between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. Therefore, you should do your rate shopping for a likely loan within a focused period of time. If you've had credit problems in the past, re-establish your credit history. If you open new accounts in a responsible manner and pay them off on time, this will raise your credit score in the long term. Not that you may request and check your own credit report. This will not affect your score, but you must order your credit reports directly from the credit reporting agency, or through an organization authorized to provide credit reports to consumers.

Types of Credit Used is just the number of various types of accounts. You should only apply for and open new credit accounts only as needed. If you do it just to have a better credit score, it will most likely not happen. You can have credit cards, but you must know how to manage them responsibly. Be aware that if you close an account, it will not make it disappear, it will still show on your report, and will be a factor when considering your score.

How Credit Scoring Helps You:

Credit scores give lenders a fast, objective measurement of your credit risk. Before the use of scoring, the credit-granting process could be slow, inconsistent and unfairly biased. Credit scores have made big improvements in the credit process.

Because of credit scores:

  • People can get loans faster. Scores can be delivered almost instantaneously, helping lenders speed up loan approvals. Today many credit decisions can be made within minutes. Even a mortgage application can be approved in hours instead of weeks for borrowers who score above a lender's "score cutoff". Scoring also allows retail stores, Internet sites and other lenders to make "instant credit" decisions.
  • More credit is available. Lenders who use credit scoring can approve more loans because credit scoring gives them more precise information on which to base credit decisions. It allows lenders to identify individuals who are likely to perform well in the future, even though their credit report shows past problems. Even people whose scores are lower than a lender's cutoff for "automatic approval" benefit from scoring. Many lenders offer a choice of credit products geared to different risk levels. Most have their own separate guidelines, so if you are turned down by one lender, another may approve your loan. The use of credit scores gives lenders the confidence to offer credit to more people, since they have a better understanding of the risk they are taking on.
  • Credit rates are lower overall. With more credit available, the cost of credit for borrowers decreases. Automated credit processes, including credit scoring, make the credit granting process more efficient and less costly for lenders, who in turn have passed savings on to their customers. Also, by controlling credit losses using scoring, lenders can make rates lower overall. Mortgage rates are lower in the United States than in Europe, for example, in part because of the information - including credit scores - available to lenders here. Knowing and improving your score can also lead to more favorable interest rates.

Facts about the U.S. credit economy

  • There are over one billion credit reports issued annually
  • Two-thirds of the American economy is driven by consumer spending
  • Outstanding consumer credit totals $1.7 trillion
  • Credit reporting saves the average person 200 basis points on their mortgage loan
  • On average, every U.S. household owns a car and one-third have a second car
  • The average American has eight credit cards or loans
  • There are 7000 credit card issuers in the U.S. offering more than 27,000 types of payment options