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The single most important item on your credit report is a little three-digit number that ranges from 200 to 850 and is called a credit score. When you borrow money to buy real estate or sign up for certain long-term services, such as taking on consumer debt (credit cards, lines of credit) or public utilities, your lender sends all the contract information to a credit bureau. The credit bureaus determine how well you have handled your debts, or contracts, in the past and provide a summary of this information in the form of a credit report. From the information in the credit report, the bureau determines a credit score based on five major factors: 1) previous credit performance, 2) current level of indebtedness, 3) time credit has been in use, 4) types of credit available, and 5) pursuit of new credit.
In the pie chart you will notice that there are five distinct factors included in credit report calculations, although each category carries a different importance, or weighting, to the overall calculation of the credit score. Here is how the weighting breaks down: 
As you can see on the pie chart above, the two areas that affect your credit score the most, and almost equally, are your historical credit performance and your current level of indebtedness. Although you may not be able to make a significant impact on your debt elimination or current level of debt, the factor that can boost your credit rating the most is having a past that shows you pay off your debts according to the contract, if not sooner. Plan ahead when evaluating additional debt to ensure that you can pay it off quickly and boost your credit score. Additionally, maintaining low levels of indebtedness (or not keeping huge balances on your consumer debt, credit cards or other lines of credit), having a long credit history, and refraining from constantly applying for additional credit will help your credit score.
The percentages in the chart above are based on the importance of the five major credit report categories for the general population and may vary when it comes to your actual credit score. For particular groups - for example, people who have not been using credit long - the importance of these categories may be somewhat different. Although we would love to explain the exact formula for calculating the credit score, the Federal Trade Commission has a secretive approach to this formula and keeps this information very confidential.
Please visit www.idealfsi.com for more information on credit repair, cash flow management or wealth creation.
Author:
Chad Sunyich
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