Your credit score is a number that represents your creditworthiness to lenders. The higher your score, the more likely you are to be approved for loans and credit cards. But what goes into calculating your credit score?
There are a few key factors that make up your credit score:
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Payment history: This is the biggest factor in your credit score, accounting for 35% of it. Paying bills on time and in full is crucial for maintaining a good score.
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Credit utilization: This refers to the amount of credit you're using compared to your total credit limit. It accounts for 30% of your credit score.
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Length of credit history: The longer you've had credit, the better it looks to lenders. This accounts for 15% of your score.
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Types of credit: Having a mix of different types of credit, such as credit cards and loans, can help improve your score. This accounts for 10% of your score.
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New credit: Applying for new credit can temporarily lower your score, so it's important to be strategic about when and how often you apply. This accounts for the final 10% of your score.
By understanding how your credit score is calculated, you can take steps to improve it over time.