When it comes to your personal credit history, it pays to know the score. That’s because many lenders—even some insurance companies—make decisions and charge rates based on your credit score. Also known as FICO, this number is calculated by credit bureaus and can range from the 300s to the 800s.

What makes up your credit score?
1. CAPACITY (percentage of credit limits available) - 30%

2. ACCUMULATION OF DEBT in the last 12–18 months - 10%

• Number of credit inquiries
• Opening dates

3. MIX OF CREDIT - 10%

• Installment (raises) vs. revolving (lowers)
• The more finance company loans, the lower the score

4. PAYMENT HISTORY (i.e. on-time pays or delinquencies) - 35%

• More weight on current pay history

5. LENGTH OF CREDIT - 15%

What actions will hurt your credit score?

• Missing payments—regardless of dollar amounts (it will take 24 months to restore credit with one late pay)
• Credit cards at capacity (i.e. maxing out credit cards)
• Closing credit cards out (this lowers available capacity)
• Shopping for credit excessively
• Opening up numerous credit accounts in a short time period
• Having more revolving loans in relation to installment loans
• Borrowing from finance companies

How do you improve your credit score?

• Pay down on credit cards
• Do not close credit cards because capacity will decrease
• Continue to make payments on time (older late pays will become less significant with time)
• Slow down on opening new accounts
• Acquire a solid credit history with years of experience
• Move revolving debt to installment debt What doesn’t affect your credit score
• Debt ratio
• Income
• Length of residence
• Length of employment

5 Common Credit Score Misconceptions:

1. I make my car and mortgage payments on time, but sometimes run slow on my credit cards. This way my score is impacted less.
   Current or recent slow credit impacts your credit score in the same manner, regardless of whether it is a $10 credit card payment or a $1,000 mortgage payment.
2. Borrowing money from a finance company doesn’t affect my credit score any more or less than borrowing from a bank or credit union.
   High-risk finance companies often make loans that are not conditional sales contracts. Opening one of these loans does indeed lower your credit score. In addition, when a loan is designated by other codes, such as “household goods” (HG),
   it will negatively impact your credit score.
3. A poor score will haunt me forever.
   Actually, the opposite is true. A score is a “snapshot of an applicant’s potential risk at a particular point in time.” Scores alter with time and changes in your credit performance, with the heaviest weighting being given to your most recent credit activities. Past credit problems fade as time goes by and as recent positive data accumulates.
4. I only carry $500 in credit card debt on one $500 limit card, so my score must be high.
   Although it is commendable that you have only $500 in unsecured debt, it is our belief that as much as 30% of your credit score is based on your capacity to borrow. This means that even though you have only $500 in revolving balances, if your limit is only $500, you have zero “capacity.” If you owe $500 and have a $5,000 limit, you have 90% capacity. The latter will result in a higher score for the same member with a $500 balance.
5. I opened new low-introductory rate credit cards and paid off my older cards to improve my credit score and save money in interest.
   You saved money in the short term, but may have adversely impacted your “Length of Credit” by opening new accounts and closing out your older accounts. You may also see a negative impact to your score due to “Accumulation of Debt.” Also, be sure to watch out for misleading low introductory- rate credit cards. Many programs dramatically adjust the rate upward after the introductory period is over. In addition, if you happen to miss a payment by a single day, or accidentally charge over your credit limit, your rate may automatically be increased to the maximum limit without notifying you. It always pays to look at the fine print to understand each credit decision you make.