Demystify Your Credit Score Calculation

by Nancy Brenseke 11/17/2019

Understanding how your credit score goes together and how to improve it is a bit of a murky subject. The advice out there is not always consistent and depends on the financial viewpoint of the source. However, there are concrete factors that do go into the calculation of a credit score and when you understand what ingredients go into the mix, you can cook up a sweet situation for yourself. To begin, you will need to understand the many financial terms that you will encounter.

Learning the lingo 

A credit utilization, or utilization ratio, is how much of your total available credit is open for use. Most of the advice you find states that a ratio under 30% is good, but a better number is under 15%. Revolving credit cards are those accounts that you can leave a balance on and roll it over month-to-month, paying over time. Examples of these would be your major name cards, some gas cards, and department store cards. Installment plans are your auto, home loans, and student loans. Charge card credit accounts are those that you pay in full each month. An example is American Express Charge Card versus American Express Credit Card. Service credit accounts are those you have an agreement with, like your utilities or cell phone service provider. In the end, having a mix of credit types helps to raise your credit score. 

Helpful hints for credit scores

Another thing that helps your score is the age or history, of your credit accounts. Age counts for a percentage of your creditworthiness. The older your accounts are, the better, proof that time is on your side. Closing accounts can raise your ratio, so be careful about what you decide to do with paid-off credit cards or lines of credit. Even though you are not going to use that account, you may want to leave it open at a zero balance to help keep your ratio low. Apply for new credit only when you need to. For example, when buying a vehicle or a home, having too many inquiries for new credit in a small period can lower your score. Paying on time is a tremendous way to keep your score in a desirable range. Pay on or before the due date, every month. Keeping an eye on your utilization ratio so you can be sure to keep your score where you want.

Take the time this month to calculate your credit utilization ratio.

About the Author
Author

Nancy Brenseke

I love the ocean, sand and sunshine! That's why I call Hilton Head Island/Bluffton my home! I relocated to Hilton Head Island over 20 years ago from North Carolina after graduating from East Carolina University - Go Pirates! I continue to be successful in real estate for the past 13 Years and with my experience working with top resorts and gated communities, I have cultivated attention to detail, understand the importance of listening first and have the positive "Can Do" attitude in all situations. I offer my sellers and buyers the BEST advice to achieve their real estate goals. I enjoy spending time with my family boating on the May River, attending festivals along Old Town Bluffton and building sandcastles on HHI beaches.  

"Nancy Brenseke is the type of realtor that everyone should contract to sell their property. She is very knowledgeable and gave us valuable information when listing the townhome. The whole process went smoothly and Nancy was responsible for that. She always communicated with us which kept us confident that all aspects of the closing were under control and on track. I highly recommend Nancy Brenseke." ~ Deb Bluffton, SC

"I would highly recommend using Nancy for your real estate needs. She is extremely knowledgeable and responsive. Nancy's representation is top-notch." ~ Jill - Nashville, TN

"Nancy went the extra mile on everything around selling the condo. I would use her again and would recommend her to anyone I come in contact with. Our condo sold in 1 day! She was excellent and hardworker. She helped in all aspects of selling, from marketing with great number of pictures, to home inspection with helping us find contractors to fix the inspection issue so were were able to close." Eric - Cumming, GA