How is your Credit Score Calculated?

Here at Lancaster Toyota when buying or leasing a new vehicle, your credit score can impact the kind of deal that you get for it. Usually, the better your credit score, the better the interest rates you can get, and the more credit lenders will be willing to let you borrow.

Your credit score is determined by analyzing your credit report with a mathematical algorithm and condensed down to one number. There are six main types of information on your credit report that help determine your credit score.

Man looking up his credit score on a computer

What factors determine your credit score?

1. Payment History

Your payment history is the most important factor in determining your credit score, the majority of scoring models count your payment history as 30 to 35% of your score. Paying your bills on time is the best way to improve and maintain your credit score, so make at least the minimum payment on time every month.

2. Credit Utilization Ratio

Your credit utilization ratio is how much you spend on your credit accounts in relation to your credit limits, and is the second most important factor in determining your credit score. It’s best to maintain a low utilization ratio, meaning you need to keep the balance you owe on your card low in comparison to the limit of the card.

3. Inquiries

An inquiry is posted to your credit report when you apply for any kind of credit. An inquiry only has an impact on your score for a short amount of time. But it’s still best to only apply for credit that you actually need.

4. Accounts

The type, age, and number of your credit accounts are all factors in determining your credit score. Long credit history – accounts open for a number of years – and a variety of types of credit are best.

5. Debt-to-Income Ratio

The amount of debt you’re carrying is less important for something like an auto loan, but it does affect your credit score and other types of loans. Your debt-to-income ratio is the amount of debt you have over all your accounts, in comparison to your income. In general, a lower debt-to-income ratio is better.

6. Public Record Information

Information that is part of your public record, such as bankruptcy, has an impact on your credit score. As of July 2017, however, the type of public record information that is included on your credit report has changed. Nearly all civil judgments and most tax liens will no longer be included.

What has a negative impact on your credit score?

So now that you know what factors determine your credit score, what do you need to avoid to keep your credit score up? The things that are most likely to negatively impact your credit score are late payments, accounts in collections, foreclosures, and short sales. A high credit utilization ratio or high debt-to-income ratio can negatively affect your score, as well. Several credit applications in a short period of time could also have a negative impact.

Check out our finance center, get pre-approved for credit, or calculate your potential payment on our site, then come down to Lancaster Toyota to find the vehicle that’s the perfect fit for you and your family.