Understanding Your Cumulative Credit Score


It’s said that you should give credit where credit is due, but when it comes to your credit report, simply paying your bills on time isn’t the only thing that matters.

There are at least five components that result in a cumulative score, none of which are equally weighted. Changes in any of the five areas can have an impact on how lenders view you.

Understanding the percentage rule — the valuations that form your credit score — can help you make smart financial decisions, and guide you in the right direction if you are doing some credit repair.

How payments influence your credit

The categorical differences between what contributes to your credit score and what doesn’t can be quite confusing if never explained. Most consumers acknowledge that making on-time payments is important, but even that rule of thumb has a caveat.

While a good track record is important, every payment you’ve ever made on your own does not contribute to the 35 percent that payment history weighs on your credit score. According to MyFico.com, public records, both open and closed lines of credit, delinquencies and overall good repayment practices all account for portions of your payment history. Credit cards from banks and retailers may be expected, but there is often confusion around what is considered a public record. Utility bills, most loans (depending on the lender) and formal payment agreements are not reflected on your credit report or score unless they go to collections.

Failure or inability to meet the terms of your financial agreement will show up as a negative mark on your credit report. In some cases, however, you can settle outstanding balances before they affect your score — even if they have already gone into collections. Liens, as well as foreclosures, bankruptcies, lawsuits and court rulings may also be negative markings on your credit report with information of the amount and the lateness of each payment included.

If you are concerned about a few late payments, fret not. The payment percentage of your credit score is less than half, and a few instances of delinquency will shave only a few points off your score, if they occur infrequently.

The next-most influential criterion of your credit score is your debt-to-income ratio. The amount you owe on any given accounts, as well as the nature of the obligation, are all worth 30 percent of your score. Student loans, for instance, are reviewed differently than your favorite department store credit card. The number of accounts you have open, the amount owed on each and their utilization ratios are all taken into account to determine this portion of a credit score.

Credit length and history

Credit history accounts for about 15 percent of your overall score. Equifax, one of the three largest credit bureaus, said while having long credit history is more favorable, opening too many new accounts over a short period of time can have negative implications. Your newest account, oldest accounts and the average age of any open credit lines are all shown here.

Accounts in use, much like the “amount owed” percentage, features the types of credit you have. Whether it’s revolving or installment-based, how many accounts you have of each type and even closed accounts show up in the accounts-in-use category, totaling 10 percent.

You may not even have to open an actual account to affect this last category. If a creditor, or anyone for that matter, makes a hard inquiry into your credit standing, it affects the final 10 percent of your score. Though exceptions are made – like in the event you are shopping for car financing – even apartment and cell phone inquiries have the potential to show up here. It matters not if you are approved or denied. Credit inquires are echoed here. Period. Too many inquiries at any given time can hurt your score, said Equifax.


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