[VIDEO] How Is Your Credit Score Calculated, and Why Should You Care?
Credit scores are calculated using a formula based on your credit history. Each part of your credit history is weighted differently. Your payment history and your credit utilization ratio, for example, make up a combined 65 percent of your score.
Payment history is the record of whether or not you pay bills on time. If you make late payments or default on loans, that will affect your credit score negatively.
Meanwhile, your credit utilization ratio is how much debt you use compared to how much you have access to. For instance, if you have access to $30,000 in credit, using $2,000 of it looks better than using $20,000.
The rest is based on credit history, the types of credit you use, and how many inquiries are made about your score.
However, contrary to popular belief, asking for your yearly free credit report from each of the three major credit bureaus to check your score doesn’t affect it. (The three bureaus are Equifax, Experian, and TransUnion.)
So now that you know how your credit score is calculated, check away and keep an eye on it!
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