In the United States, there are three different credit bureaus, which are Equifax, Transunion and Experian. Each of the bureaus tries to maintain an accurate picture of your credit worthiness. If you’ve ever wondered what makes up your credit score, and want to know what you can do to improve it so that the next time you are interested in picking up any sort of loan so that you get terms which more are favorable to you, keep reading!
If you were considering lending money to someone, and you didn’t know anything about the person, what sort if information about them would you want to know? You probably would want to know how much they have borrowed now so that you aren’t giving a drunk a drink and enabling someone to borrow too much money. You would also probably want to know if they have paid their bills in the past and that they paid on time. You’ll want this history to go back quite a bit of time to make sure there aren’t any disturbing trends in their financial life. You might also want to know if this person has applied for credit recently, because this might indicate that they want to borrow a whole bunch of money at once, with out all of the lenders knowing about each other. When you borrow money, banks want to know this information about you, and they do this by getting your credit score through the major credit bureaus.
Your credit score is made up of all of these things, based on a complex proprietary formula that is kept from the public. We do know that 35% of your FICO credit score is based on your history of making payments. This includes how many times you’ve been late, if you’ve not paid, and how long ago the mistakes were made. 30% of your credit score is how much money you’ve currently borrower. Another 10% of your credit score comes from your available credit. If you have tens of thousands of dollars that you could borrow at will through a credit card, banks won’t like this because your financial situation could become much more dire at any moment. Another 15% of your credit score is based on the length of your credit history. If you have had a longer history of being on time than someone else, your credit score will be better. 10% are based on the number of credit inquiries in the last year, and another 10% is based on the types of credit that you have.
So what can you do to improve your credit score? There’s a lot of discussion as to what secret steps you can to make your credit score better, but you can’t go wrong on paying off debt and paying your bills on time.