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A credit score is the most important part of your financial present and future. It's a major factor in whether you get a loan and what the interest rate on the loan is. Knowing what determines your credit score can guide you in the right direction. After all, the higher the score, the lower the interest rate.
Credits are determined by five main factors: payment history, amount owed, length of credit history, new credit, and credit mix. Each part makes up an unequal percentage of your credit score.
Payment history makes up 35% of your credit score and is determined by several factors. Paying your bills on time for every account and, if you made late payments, how late the payments were are two main parts. One of the most damaging factors that plays into payment history is if you've had any accounts go to collections. That's a major turn-off for lenders as it indicates you might not repay the loan.
Amounts owed makes up 30% of your credit score and looks at how much you owe. Parts of this factor include how much of your total available credit you've used, how much you owe on specific accounts, and how much you owe in total.
Length of credit history makes up 15% of your credit score and is pretty self-explanatory. The only part to make up this factor is simply how long you've been using credit.
New credit makes up 10% of your credit score and looks at how many new accounts you've recently applied for and opened. Applying for many new accounts at once, like when applying for auto financing, will hurt your score if done over a long period of time.
Credit mix, or types of credit, makes up the final 10% of your credit score. This factor looks at what kind of accounts you currently have open, like credit cards and mortgages.