How is my Credit Score figured?

A credit score is what tells a lender how likely you are to repay your loan. The lower the score, the more risk the lender has. The higher the score, the more assurance the bank has and you are rewarded with a lower interest rate than someone with a lower score. Credit scores range from 300 to 850. For most conventional loans you need a score of 620 or higher. Some government-sponsored loans will go as low as 580 but not many will risk it.


There are two types of scoring systems. FICO and Vantage Score. Most lenders use the FICO scoring system. FICO has 5 areas of scoring and each has a different percentage of points in each category.


The amount owed to each lender is about 30% of your overall score. Let's say you have a credit card with a $5,000 dollar credit limit. In order to optimally affect your credit score, you would want to keep your balance below $1,500 or below 30% of the credit limit. Using all of your available balance or even half will affect your credit score negatively.


Each time someone runs a credit check, your score will drop some. New credit affects about 10% of your score. This category is made up of new inquiries and recently opened accounts. New inquiries stay on the report for 2 years and new accounts are not considered new anymore after 12 months of being opened.


15% of your score is your length of credit history. Under 2 years you are still considered brand new, and will probably only be approved for small amounts and secured credit cards.

2-4 years they will consider giving you more responsibility or a larger amount. 4-6 years means you have some experience, you are learning the system, and are ready to be given more. At 7 years you hit the magical number and although there is no party or gifts, you do have the satisfaction of having a credit score and credit history long enough to apply for a substantial loan amount.


Payment history is about 35% of your score. The older the item is, the less it impacts the score until it is eventually dropped off the report. The report drops off both good and bad reports, so nothing stays on there forever. You can't just buy a car, make all your payments and expect it to show up as a good report forever. Most states drop after 7 years, but this does change depending on where you live. This is a VERY important category, it is the biggest percentage and it will change the most since you make payments every month.


The last 10% is other mix. This category checks to see how you spread your credit out. Are they all retail store cards or do you have a store card, mortgage, and an installment loan? They want to be sure you are spreading the types out across several areas.

We could spend hours on each category but we will stop with a summary of each for now. If you have any questions or onsultationwant to schedule a buyers c, you can contact me at or my cell phone number is 573-837-0951.

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