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How Is My Credit Score Calculated?

Like many people, you may have had some credit challenges in the past -- we're here to help you repair your credit score and get your life back on track.

Payment history is one of the biggest factors for your credit score. Payment history determines approximately 35% of your total credit score. Credit cards, auto loans and mortgages are common obligations that will be monitored on your credit and tend to be reported every month. If you are late once on one of these bills it will likely have less of an effect than if you are late several times or on several different accounts.

Second, the balances on your open accounts or "amount owed" will determine approximately 30% of your total credit score. It's not that you owe a lot of money or just a little money, it's how much of your available balance are you using? If you have a $10,000 credit limit and you have accrued a $1,000 balance you are only using 10% of your available credit line. However, if you have a $1,500 credit limit and you are using $750 you have already used half of your available balance and this can decrease your score.

Next, length of credit history will contribute to about 15% of your credit score. If you have had established credit for ten years, your likelihood of paying on a new loan is much easier to determine and will, with good payment history, give you a higher credit score than if you have only had credit for a short time.

Credit history, more specifically, new credit, can account for approximately 10% of your total credit score. If you apply for credit every once in a while it will have much less of an impact than if you apply for credit less frequently. If you are going to apply for credit try to make all of your credit inquires within a short period of time and limit them to only a few. These inquires will look like you are just shopping for a good rate. For example, if you are trying to buy a car, it would be wise not to have ten different dealers run your credit, or even five different dealers over a month and a half. Try to keep this all in a short time frame (less than a month).

Finally, the type of credit you have. Much like your retirement account, you should diversify your credit portfolio by having a mix of installment credit and revolving credit. If you have a few credit cards that have low percentages of their max available amount currently owed, an auto loan and a mortgage that you can afford -- that would be a great start.

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