Factors that Determine Credit Scores

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To effectively manage your credit scores you need to know and understand that factors that are considered in calculating these scores. Without this knowledge you will be operating blindly and you could easily find your credit score suffering simply due to lack of knowledge on these factors. There are five factors on how to improve your credit score and we shall look at them in order of weighting since some of them have a greater influence than other.

Repayment History
This is the most critical factor in the calculation of your credit scores and constitutes 35% of your score. You need to ensure that you make timely payments and should you fall behind it is critical that you quickly get you payments back on track. Make a commitment to meet your financial obligations or it could negatively impact your scores.

Outstanding Balance
This next factor contributes 30% of the total credit score. To earn this 30% you must make sure that your credit cards are not almost or already maxed out. Leave some amount of reasonable balance on your cards. Having a higher amount of credit available to you gives you more marks while having the bare minimum balance shows you may be having financial problems and you may lose good track of your financial planning goals.

Length of Credit History
This is where you get the next 15% from. Here there is not much you can do except give it time. It is however a fair approach since those with greater financial experience stand a better chance of handling credit well.

Types of Credit
Having a variety of credit lines accounts for 10% of your total score. You should however be careful about rushing to sign up for many cards or accounts since you may loose points for having too many applications in a short span of time.

New Credit
The final consideration in calculating your credit score is new credit which accounts for the final 10% of your scores. All applications that you submit and get approval for new lines of credit earn you points. However when you apply and get rejected you loose points and it is better to try and work with the existing lines of credit and only apply for new ones when you can afford and when you know your chances of approval are high.

Having the above information will help you in financial planning and budgeting as you will know where to lay emphasis and which are the more important considerations when making your financial decisions.