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Chrisman’s Corner: What Ingredients Go into the Credit Score Cocktail

Brokers are often asked by borrowers, “What is my credit score?” Among college students, 74% don't know their score, according to a study by a leading mortgage insurance company (MGIC). So, for all of our brokers with college students as future clients or parents of college students, or just people with credit cards in general, let JMAC give you a primer on the special ingredients that make up a FICO credit score and how it’s calculated.

Essentially, borrowers’ credit scores are determined by 5 factors of differing importance. The first and largest portion is that of payment history, which comprises 35 percent of a borrower’s credit score. Payment history is how often their clients pay their accounts on time with late payments typically leading to a lower score.

The next biggest chunk is how much a person owes, or as they put it, “How much of your total credit have you used?” JMAC’s brokers will inform their clients that, by lowering debt, a person can receive a better credit score. How long a person has had credit history takes up 15 percent of their total score. If a person has a longer history with responsible credit (a solid first two chunks) they will likely have a higher score.

Ten percent comes from new credit lines. Opening several accounts in a short time can lower one’s credit score. I’m not sure how well America listens to that advice since the average number of open credit cards per consumer is nine.

The final ten percent of a credit score is derived from the types of credit used - a car loan and a credit card. However, it isn't just college kids who don't know what their credit score is; 144 million Americans haven't checked their credit score in the past year.

Credit scores can even affect relationships. Fifty seven percent of women and forty seven percent of men said it was important to know a partner’s credit score before getting seriously involved. There you have it America—get checking.