What is a Credit Score?

Your credit score is used by a lender to help determine whether you qualify for a credit card, loan, or service. Credit scores are used to estimate the risk you may carry as a borrower—specifically, if you can make payments on time. Generally, the higher the score, the less risk you present to the lender.

Applying for new credit can impact your credit score. There are two categories of new credit inquiries that consumers use when applying for credit:

• Rate shopping: Inquiries posted when a consumer is shopping for a mortgage loan, student loan, or auto loan are recognized by the credit scoring system as rate shopping. While all the inquiries will show on the credit report, only the first inquiry will impact the credit score during a 30-45 day time frame.

• Seeking new credit: If a consumer applies for multiple credit cards in a short period of time, each inquiry will impact their credit score. The impact of a single credit inquiry is minimal but seeking multiple new credit lines can lower your score.

Your credit score is determined by five components of your credit habits. Improvements in the two most important categories, “Payment History” and “Amounts Owed,” will have the most dramatic effect on your credit score and help you to reach your long-term financial goals.

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• 35% Payment History – Late payments can damage your score quickly, but a record of on time payments helps your score.

• 30% Amounts Owed – The more you owe in proportion to your credit limit, the lower your score will be. Also known as "utilization."

• 15% Credit History – The longer your history of responsible credit, the better.

• 10% Types of Credit – Responsibly managing different types of credit such as auto loan, and credit cards can help your score.

• 10% New Credit – Opening several accounts in a short time may lower your score.

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