Understanding Credit Scores

YOUR GUIDE TO HAVING GREAT CREDIT

What is a credit score?

Your credit score is a three digit number, typically ranging from 300 to 850, that relates to your likelihood of repaying debt. Traditionally used by lenders when you apply for a loan, your credit score may now also become a factor when applying  for jobs, insurance, and rental properties.

Score ranges

730-830 = A+
680-729 = A
640-679 = B
600-639 = C
550-599 = D
549-below = E

What makes the credit score?

 35% = Payment History
On-time payments, with more weight given to recent payments, are the biggest factor in your credit score.

30% = Capacity (Amounts Owed)
How high are balances on revolving accounts in comparison to limits? It is better to owe little or nothing on multiple credit cards or lines of credit than to use most of your available balance on a single account.

 15% = Length of Credit History
What is the average age of your open credit accounts?

 10% = New Credit
Accumulation of new credit accounts in last 12-18 months and the number of inquiries can lower your score.

 10% = Types of Credit Used
Installment loans (auto, mortgage) can increase your score; Revolving loans (credit cards, lines of credit) can increase or lower your score depending on how they are used; Loans from finance companies can decrease your score.

What hurts your credit score?

• Missing and delinquent payments (it can take 24 months to restore credit from a missed payment)
• Maxing out credit cards
• Shopping for credit excessively
• Opening numerous trades in a short time
• Having more in revolving debt than installment debt
• Closing credit cards when it reduces capacity
• Borrowing from finance companies

What improves your credit score?

• Pay off or down revolving accounts like credit cards
• Make sure your capacity stays good when closing credit cards
• Move revolving debt to installment debt, but keep revolving open
• Continue to make payments on time (older late payments lose significance over time)
• Slow down on opening new credit accounts; 1-2 per year is a good guide
• Acquire a solid credit history with years of experience

Approximate credit weight for each year

• 40% = Current to 12 months
• 30% = 13-24 months
• 20% = 25-36 months
• 10% = 37+ months

To learn more about your credit score and ways to improve it, please contact a Member Service Officer at 503.220.2592 or info@trailheadcu.org.