What Makes Up Your Credit Score?

From Experian.com

When purchasing a vehicle, your credit score plays a major role in whether or not banks or credit unions will agree to offer you financing. Plus, the higher your score, the lower your interest rates will be.

Unfortunately for many people their credit score is bit of a mystery. How does it get calculated? How can someone raise their score? What is the difference between “hard” and “soft” credit inquiries?

First, the basics: Your credit score is a number calculated by credit bureaus to describe your creditworthiness – how likely you are to repay your loan on time.

It can range from the 300s to the 800s. The higher the score, the better.

Credit scores fluctuate with time and changes in your credit performance. Most recent credit activities carry the most weight. Past credit issues fade over time.

Your score is made up of five components (This information is from Dupaco Community Credit Union):

• 35% is based on your payment history. The most weight is given to whether you pay your bills on
  

  From Dupaco.com

  time.

• 30% is based on the amount you owe – the percentage of credit limits available.
• 15% is based on your length of credit, which is the amount of time a line of credit has been established.
• 10% is based on new credit accumulation – the number of credit inquiries and new line opening dates in the last 12-18 months.
  • This is where “hard” and “soft” credit inquiries come into play.
    • A hard inquiry occurs when a lender with whom you’ve applied for credit reviews your credit report as part of their decision-making process. This type of inquire appears on your credit report and can influence your credit score.
    • A soft inquiry occurs when you check your own credit, or when a lender or credit card company checks your credit to pre-approve you for an offer. These do not impact your credit score.
    • Too many hard inquiries in a short period of time can be concerning to lenders because it could mean you opened multiple new accounts. But credit scoring models do consider the possibility that you are rate shopping for the best deal, so when there are multiple inquiries for a certain kind of credit product (like a car loan!) in a short period, they will consider it to be a single inquiry, which will have a smaller impact on your credit score than multiple, separate inquiries.
      This information is from Experian.

• 10% is based on the type of credit, showing that you can responsibly handle a mix of credit. Installment loans (like auto, mortgage, and personal loans) raise scores, while revolving loans (like credit cards) tend to lower scores.

What about if you had financial issues in the past, but have turned things around? Here’s the credit weight for payment history from Dupaco:

• 40% of your credit score is based on the last 12 months of payment history.
• 30% is base don the last 13-24 months of payment history.
• 20% is based on the last 25-36 months of payment history.
• 10% is anything more than 37 months ago.

You can check your credit score at no cost here.

Looking to get a loan for a vehicle? Fill out our online finance application here. Then shop our entire inventory online!

Learn more on Dupaco Community Credit Union’s website here.