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What is a Credit Score?

What Affects Your Credit Score?

Your credit rating is affected by your payment history, the total amount you owe all creditors, your debt to available credit ratio, the types of credit you have, how long you've had credit, and how much new credit you've received or recently applied for.

Let's look a little closer at each component of your credit rating:

  • Payment History takes into account how you have paid your creditors over the past 7 years—if you pay on time as agreed, made late payments, or defaulted on a loan.
  • Balances considers how much you owe your creditors and how many high balances you carry.
  • Ratio of Debt to Credit is the percentage you owe on an account compared to the account's total credit limit. When you owe more than 50% of the credit limit your credit score is adversely affected. As a general rule, your goal should be to keep your balance below 50% of the total credit limit. Below 30% of the credit limit is even better. (Though not a part of your credit score, most lenders will also look at your overall debt to income ratio—short, how much you owe versus how much you earn. The lower the ratio the better.)
  • Types and Diversity of Credit means the kind of credit you carry, such as revolving credit (the riskiest type of credit), or secured credit (the safest type of credit). According to the credit bureaus an ideal number of entries is made up of two installment accounts (like a mortgage and an auto loan) and two revolving accounts (like credit cards, store cards, gas cards, etc.).
  • Credit History. The longer you have had positive credit accounts, which remain open and active, the higher your credit score.
  • New Credit and Inquiries. Every time you apply for new credit, or ask for an increase in credit, your credit score is adversely affected. Credit and collection agency inquiries are considered "hard pulls" and lower your credit score. According to credit industry statistics, six or more recent inquiries on your credit report implies you will be eight times more likely to file for bankruptcy than if you had no inquiries in your file. Receiving promotional offers or requesting your own report or score are considered "soft pulls" and do not affect your score.

Even though "soft pulls" do not affect your credit score, if you wish to opt out of pre-screened offers you can do so by submitting your contact information at

> What Does Not Affect Your Credit Score: