The items included in your credit report will be used in determining your credit score. Each of the three CRAs calculates their own credit score based on the information reported in your credit file. Because of differences in reporting by creditors to CRAs, there will also be differences in the credit score calculated.

To understand how the credit score is calculated, and why it is such a powerful indicator of your creditworthiness, it should be assumed that it is not the creditor or account itself reported to your credit file, it is the information contained in the report, including the type of account, your performance with that account, and how it is reported that is affects credit scoring. This information can dramatically change credit score, thereby affecting your ability to obtain credit. Essentially, your credit score is a reflection of credit management behavior---the higher it is, the better you can handle credit; the lower the score, the less likely you can maintain it, and the more likely you will need to consider options for debt relief programs.

With that in mind, there are five components that make up your credit score, including payment history, amounts owed, length of credit history, new credit, and types of credit used/credit mix. Each component carries different weight in calculating your credit score, which should be taken into account while evaluating different debt relief programs (see “Developing Good Credit” and “Starting Over: How to Redevelop Credit” for more information).

Payment history is the most important component of your credit score. This includes payment performance on different types of credit accounts, late payments, and the length of late payments or delinquencies. Collection accounts, the length of these accounts, the amounts owed on these accounts are important factors. If delinquencies or collections have been resolved, the time since they were open, and how they were resolved will alter your credit score (see “Collections Accounts”). Additionally, having liens, judgments, bankruptcies, or other public records in your credit file will negatively effect credit scoring.

Amounts owed include a number of factors, and is a close second in importance to credit scoring. Having many accounts with high balances or amounts due or high debt-to-value of a revolving or installment account, can negatively affect your credit score (see “Developing Good Credit”). However, having a history of not having a balance can have an effect on scoring, because it points to not using the credit available to you at all.

The other three factors are weighted far less heavily than payment history or amounts owed. The length of credit history includes how long credit accounts have been opened, and time since account has been accessed. New credit relates to obtaining new accounts. Having numerous inquiries or opening multiple credit accounts in a short period of time may have negative effects on scoring. Lapses between inquiries and re-establishment of good credit after past debt mismanagement are also considered. Finally, having a good credit mix (types of credit used) that includes both revolving and installment accounts is factored into your credit score.