Your credit score is like a report card of how you manage your money, and like a report card, the better job you do, the higher score you will get. The most common credit scoring system used in the U.S. is the FICO score, which ranges from 300 to 850. The FICO score has five components that makeup the score, and each is weighted differently.
Credit Score Component 1: Payment History
Your history of paying bills and managing debt is the most important factor in your credit score. Payment history makes up 35 percent of your FICO score and takes account whether you have paid your bills on time. Instances of not paying your bills on time will lower your credit score. If you have accounts that are delinquent or get charged off because you went several months without paying them, your score will be lowered significantly.
Credit Score Component 2: Amounts Owed
The amounts you owe takes into account how much debt you have, especially in relation to how much open credit you have. You generally want your debt to equal less than 30 percent of your total available credit, so if you have a credit limit of $10,000, you should carry less than $3,000 in debt. This does not factor in debt from from loans such as a mortgage.
Credit Score Component 3: Length of Credit History
How long you have had credit makes up 15 percent of your score. Generally, all things being equal, someone whose credit history goes back 20 years will have a slightly higher score than someone whose credit history is only 15 years (your650score.com).
Credit Score Component 4: Types of credit use
Ten percent of your credit score is based on your mix of credit. To get the best credit score possible, you should have both revolving credit, such as credit cards, and fixed credit, such as a mortgage and car loan.
Credit Score Component 5: New Credit
Every time you apply for new credit, you get an inquiry into your credit report, and certain types of inquiries can slightly lower your score. New credit also shortens your credit history, which can slightly lower your score as well.
Credit Score TO BUY A HOUSE
If you’re wondering what kind of credit score is needed to buy a house there are many great resources available such as this one: http://your650score.com/650-credit-score-mortgage/
Make sure you understand the 5 steps outlined above, and you will be well on your way to a successful financial future.