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35% is payment history. Any late payment at any point will hurt you but the further in the past it is the less it affects you. Think of it like, "unblemished" is better than "pretty good" and a creditor wants to see how you've paid everyone else back before giving you access to thousands of dollars.
30% is amount owed. Your credit limits report, as do the amounts you owe. Keeping this ratio below 10% is what is ideal. And this does go across all open accounts. Which is why often a score will drop after an installment loan has been paid off.
15% is length of credit history. They are looking to see that you are good at keeping your accounts long term. It's an average of all open accounts on your report.
10% is new credit. Don't keep looking around for new credit. Keep hard pull inquiries down and honor what you have and this will stay up.
10% is credit mix. Don't put all your eggs in one basket, you need to mix up revolving accounts (credit cards) with installment accounts (car, mortgage, etc).
To answer the question, the lenders want you to have your accounts open as long as possible (loyalty), and some degree of certainty that they will be paid back based on your entire payment reputation.
@Anonymous wrote:35% is payment history. Any late payment at any point will hurt you but the further in the past it is the less it affects you. Think of it like, "unblemished" is better than "pretty good" and a creditor wants to see how you've paid everyone else back before giving you access to thousands of dollars.
30% is amount owed. Your credit limits report, as do the amounts you owe. Keeping this ratio below 10% is what is ideal. And this does go across all open accounts. Which is why often a score will drop after an installment loan has been paid off.
15% is length of credit history. They are looking to see that you are good at keeping your accounts long term. It's an average of all open accounts on your report.
10% is new credit. Don't keep looking around for new credit. Keep hard pull inquiries down and honor what you have and this will stay up.
10% is credit mix. Don't put all your eggs in one basket, you need to mix up revolving accounts (credit cards) with installment accounts (car, mortgage, etc).
To answer the question, the lenders want you to have your accounts open as long as possible (loyalty), and some degree of certainty that they will be paid back based on your entire payment reputation.
Good post....we tend to overcomplicate the explainations of credit scoring, rather than KISS! There are many factors that go into scoring that we delve into on this forum...bucketing, and such...and they are interesting, but if you just concentrate on the simple things posted above, your score will be golden. It really is that simple.
Installments are not factored into utilization. Utilization is based on revolving debt only.
Closed accounts are also included in AAOA.
@Anonymous wrote:
Why would the credit score drop after closing an installation account? Isn't 30%, amount owed? You're decreasing the amount owed.
Usually, but not always, the credit score will drop when an installment loan is paid off. This is due to a change in credit mix as well as installment loan utilization, which is in the score just seperate from revolving credit utilization. The utilizations on installments compare beginning balance to current balance. Say one month you have 2 installment loans for a car, and furniture. Say you are down to the last payment of an original balance of 30k car loan of 500 dollars, and still owe 8k of an original 10k on the furniture. The month before final car payment your utilization is 8.5k/40k or 21%. After final car payment it is 8k/10k or 80%. Your score will drop some. If the car were your only installment loan it would drop due to not having installment loans in the credit mix. Also the paid off car loan in the previous example would have a negative effect on AAoA. It would decrease the amount owed...but only by 500 dollars, which would have little effect.
@Anonymous wrote:Installments are not factored into utilization. Utilization is based on revolving debt only.
Closed accounts are also included in AAOA.
Installments are factored into utilization, just differently.
http://www.creditcards.com/credit-card-news/installment-loan-utilization-score.php
Installment utilization is vertually meaningless.
Installment loan utilization may not be as meaningful as revolving but it's still a factor. One of the factors (though not the main one) I was declined for Blispay, ratio of balance to limits too high (CC consistently in the 7-8% range so it had to be referring to the 85% I owed on my car). Also why the SSL strategy says immediately pay it down to 20%.
It's not in the dozens of points but it is a factor.