The Five Factors of Credit Scoring

MyFico.com has shared information regarding their credit scoring model. These five factors most directly affect your credit score.

1. Payment History has a 35% impact. Paying our debts on time and in full has a positive impact, and late payments, judgments and charge-offs have a negative impact.
2. Outstand Credit Balances have a 30% impact. Debt ratio of outstanding balance to available credit is important. Keeping that below 50% is wise and below 30% even better. It is never a good idea to close an account because the debt ration will go up and the number of seasoned lines will decrease.
3. Length of Credit History has a 15% impact. The length of time a particular credit line has been opened is important. A seasoned borrower is stronger. Opening new credit cards will decrease the average length and therefore hurt this portion of the score.
4. Type of Credit has a 10% impact. A mix of auto loans, credit cards and mortgages is positive, rather than a concentration of credit cards only. Be careful when applying for credit at a store that is not a department store. The credit agencies frown on cards for more specialized stores where you're likely to only make one purchase which equates to desperation.
5. Inquiries have a 10% impact. Hard inquiries for credit will negatively impact your score. Auto and mortgage inquiries receive special treatment and 20 inquiries can be made in a 14-day period for auto or mortgages and will be treated as only one inquiry. The maximum number of inquiries that will reduce your score is 10. Any inquiries beyond that in a six month period will have no further impact. Each hard inquiry can cost 2-50 points on your credit score.

Click here for more information on credit scoring. If you would like more information on credit counseling from the U.S. Department of Housing and Urban Development, then click here.