Managing your credit rating: Where do those numbers come from?

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Pay-1036480_1280Your credit rating may not determine your ultimate destiny, but it’s pretty important in lots of ways. Just how do those credit agencies like Equifax, Experian, and TransUnion figure your score? A New York Times article breaks the numbers down: 

  • Payment history. This is the biggest component, looking at whether you pay your bills on time to any organization that reports information to a credit bureau. This can including medical bills, parking tickets, even library fines. 
  • Outstanding loans. How much money do you owe the bank, or any other creditor? Is it a large percentage of the total loan or credit available? For example, maxing out on your credit cards will bring your score down. 
  • Credit history. This component looks at how old your accounts are and how much activity they’ve seen. Longstanding accounts that you’ve paid off consistently have a more positive impact on your rating. 
  • New accounts. Applying for lots of new credit cards can look as if you’re having trouble paying your current bills and can trigger a drop in your numbers. 
  • Type of credit. This accounts for about 10 percent of your score. Agencies look at how well you manage installment debt, like a mortgage, and also revolving debt, like your credit card payments. Paying off the balance regularly is better for your score than just making the minimum payment.