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Learn how Credit Scores are Calculated

A credit score is a rating that credit reporting companies use to help lenders evaluate your ability to pay back what you borrow. The three main credit reporting companies are Experian, Equifax, and TransUnion and each has a different credit score. The reason each is different is because these companies do not share information and each may have a different set of information they are considering in calculating your score. Credit scores range from 300 to 850. The higher the score the lower the risk for the lender. A score of 680 or above is considered good. Here’s a general guide to what is included in determining your score.

35% Payment History: pay on time, higher score; pay late, lower score.

30% Current Credit Use: if you’ve maxed out most of your credit lines, lower score; if you have unused credit on several accounts, best if using less than 50% of your credit line, higher score.

15% Credit History: the longer your demonstrated responsible use of credit, the higher the score.

10% Credit Inquiries & New Credit: lenders may view too many inquiries to your credit report as an indication you are struggling financially and intend to go into greater debt.

10% Credit Mix: demonstrated use of different types of credit gives you a higher score.

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Source: "On the Path to a High Credit Score"

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