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Everyone in the world today has been troubled by the current state of the economy. The troubles we face have had a bad impact on our credit score leading us to financial strain.

If you have ever applied for a loan for a home or a car, you know the single most important factor in your approval is your credit score.

There has been a lot of confusion of what a credit score really is and how it is worked out. This article is aimed at clearing up all the myths in regards to what makes up a credit score, by providing you with the simple facts.

Your credit score is made up of 5 major categories. These include Payment history, Outstanding Debt, Depth of File, Inquires / New Credit and Types of Credit.

Each of the variables affect your score differently. Not all are equally looked at when deriving your credit worthiness. The payment history is what weights your score the most at 35% followed by outstanding debt at 30%. The other three have less of an impact and weigh in at 15% for depth of file and at 10% for both Inquiries for New Credit and for types of credit

Now, we will proceed into more detail for these individual categories and what they are based on.

Payment history needs no other explanation. It is the heaviest hitter at 35 % of your credit score. Basically it states if you pay your bills in a timely manner. A bill has a certain time frame in which you are expected to remit payment, when you do so the creditor reports that. When you are delinquent by more than a month, this also is reported.

Weighing in at 30% on your credit report is outstanding debt. This category shows how much you have to still pay back on the monies you have already borrowed. To apply for more financing, this number should be kept in a range where it shows you can repay the money without any issues. To have a large amount of debt, could be your financial ruin.

Your depth file weight at 15% is affected by the amount of time you have held credit. The age of accounts affect your score. That credit card you opened in college, if left open and active, will boost your score up.

At 10% weights in both inquiries and types of credit against your score. The Inquiries of New Credit show who and how often your report has been looked at in order to extend credit to you, this is called a inquiry; the fewer inquiries against your report the better.

Finally, the types of credit category inventories the type of financing you have received. For instance an installment loan is more favorable than a financing company

Understanding your credit score is essential to take control of your financial future

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