Even if you aren’t too keen on debt, having a good credit score can be helpful. It may get you a lower rate on your mortgage or business loan. It can even help with getting a job, insurance company policy, or when renting an apartment. The median credit score is around 720, so it would be good to shoot to be above that level.
Your credit score comes from 22 pieces of information in five broad categories. Here they are as laid out in J.D. Roth’s book, “Your Money: The Missing Manual.”
Payment History (35%)
Have you made payments late? If so, how often? How late past due were they? Such late payments are tracked and analyzed. Frequent or numerous late payments can really trash your score. You can set up automatic payments to avoid this one.
Amounts Owed (30%)
How much do you currently owe? How much is that compared to your total available credit?
Credit Age (15%)
How long has it been since you opened your credit accounts? The longer it has been, the better. It demonstrates the ability to use credit over long periods of time.
Account Mix (10%)
Do you have different types of credit? The big ones are installment (like a car loan) and revolving (like a credit card). Having more than one type boosts your score.
New Credit (10%)
Are you opening new accounts? A lot of new accounts suddenly could indicate an urgent need for credit and can lower your score.
The weight of the different categories can change some over time. Understanding these basics can be helpful to improve or maintain an excellent credit rating. For more information, check out www.MyFico.com