Your credit score is meant to be a fair representation of your history in making payments. It is not supposed to include information concerning your age, race, sex, marital status, or income; usually, that information is included on credit application forms.

The five sections that make up your credit scores are as follows:

• Payment Punctuality History
• Percentage Used
• Longevity of History
• Type of Use
• New account searches

Each of these is weighted differently; positive factors improve your credit score and negative factors damage your credit score. The perfect customer has never made a late payment, uses about 10% of available credit, has had a credit account since graduating from college, has a mixture of different types of credit, and has not recently opened a new account because he has plenty of credit available on his current accounts.

Credit Payment Punctuality History

The payment history hinges primarily on how diligent a consumer is in repaying debt. It includes information on how long ago a missed payment was, the number of missed payments, and the seriousness of the missed payment. Typical abbreviations used include the following:

- 30 (30 to 59 days past due)
- 180 (more than 180 days late)
- CA (Collection Account)
- F (Foreclosure)
- R (Repossession)
- CO (Chargeoff)

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Negative public records regarding tax liens, judgments, collections, and bankruptcy damage credit scores.

With so many modern bill paying methods available – automatic bill payment, recurring credit charges and online bill pay – there are fewer reasons why anyone should miss a payment. Being-on-time is one of the most important factors that affect your credit score. Mail your bill in a couple of days early to make sure it reaches its destination. Keep good written records of when you pay your bills.

Percentage of Credit Used

Usually, credit card companies start a customer off with a low limit. Over time, with regular usage and prompt payments, the customer is offered a higher limit. This is a sign of responsible credit use.

Credit card companies believe that the “Debt Utilization Ratio,” which is the proportion of available credit being used, is very important. When credit cards are near their maximum limit, this sends a warning sign to financial institutions that a debtor might be struggling. Most creditors prefer customers with more than one account with ample space available under their credit limit. Too many, “maxed out” accounts reduce a credit score.

Longevity of Credit History

Most credit accounts won’t begin until someone graduates from college. If someone has a credit card since then, he will have demonstrated experience, responsibility, and diligence in handling credit. This maturity in handling credit will increase the credit score.

Type of Credit Use

Revolving credit accounts increase the credit score the most. Mortgages are more difficult to acquire, so they also receive high marks. A healthy variety of different credit types is optimal.

New Credit Account Searches

Bankers are always trying to read the customer’s mind: “Why are they applying for a loan when they already of credit accounts? They are probably having problems repaying their loans.” Financial institutions view new credit account searches as a “warning sign” of “debt problems.” Opening several accounts in a short amount of time reeks of desperation. These creditors will reduce your credit score if you have recently opened up a new account.

Although most new account inquiries are looked down upon, credit reporting agencies understand that if you make multiple applications for new credit within a two-week period, then you might be “shopping for the best rate.” Make sure that these are lumped as a single third-party inquiry, so it doesn’t downgrade your credit score. Third-party inquiries are categorized as either “hard” (new application) or “soft” (current account).

When you make a first-party inquiry into your credit score, the credit reporting agencies are not supposed to penalize you. All of these credit inquiries are recorded on your credit score.

Don’t apply for a credit card or an automobile loan before you apply for a mortgage because the new account search will lower your credit score, which will make your mortgage much more expensive.

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