A credit score is a three-digit number that reflects your creditworthiness, or how likely you are to pay back your debts. It is used by lenders, landlords, and others to assess your creditworthiness and to decide whether to lend you money or extend credit.
Your credit score is based on information in your credit reports, which are maintained by the three major credit bureaus (Experian, Equifax, and TransUnion). Your credit reports contain information about your credit history, including your borrowing and repayment activity.
There are several different credit scoring models in use today, but the most widely used is the FICO score. FICO scores range from 300 to 850, with higher scores indicating a better credit history and a lower risk of default.
There are several factors that can impact your credit score, including:
- Payment history: This is the most important factor in your credit score, accounting for about 35% of your score. Your payment history reflects whether you have made your credit payments on time and in full. Late or missed payments can have a negative impact on your credit score.
- Credit utilization: This refers to how much of your available credit you are using. Credit utilization makes up about 30% of your credit score. Using a high percentage of your available credit can be seen as a red flag by lenders, as it may indicate that you are struggling to manage your debts.
- Length of credit history: The longer you have had credit, the better it is for your credit score. Your credit history makes up about 15% of your credit score.
- Credit mix: This refers to the variety of credit accounts you have, such as credit cards, loans, and mortgages. Having a diverse mix of credit accounts can be seen as a positive by lenders and can boost your credit score. Credit mix makes up about 10% of your credit score.