Brown Assets Group (B.A.G) – Understanding How Credit Scores Are Calculated

Written by: Darius & Jocanna Brown, Executive Contributor

Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.

Understanding how credit scores are calculated and how to build a healthy credit profile is crucial for anyone looking to navigate the financial landscape effectively. Your credit score is like an adult report card, influencing your ability to secure loans and mortgages, and even impacting your ability to rent an apartment or get a job in some cases. But how exactly are these scores determined, and what steps can you take to ensure a healthy credit profile?

Firstly, it's essential to know that there are three major credit bureaus in the United States: Equifax, Experian, and TransUnion. These bureaus collect information about your credit history and use specific algorithms to calculate your credit score. While the exact formulas they use are proprietary, several key factors influence your credit score across all bureaus:


Payment history – This is 35% of your credit score: This is the most significant factor affecting your credit score. It reflects whether you've paid your bills on time. Late payments, defaults, or bankruptcies can significantly lower your score.
Credit utilization – This is 30% of your credit score: This refers to the amount of credit you're using compared to your total available credit. It's generally advisable to keep this ratio below 30% to maintain a healthy score.

Length of credit history – This is 15% of your credit score: The longer you've had credit accounts open, the better it is for your score. It demonstrates your experience managing credit over time.

Types of credit – This is 10% of your credit score: Having a mix of credit types, such as credit cards, loans, and mortgages, can positively impact your score, showing you can handle different types of debt responsibly.

New credit inquiries – This is 10% of your credit score: Opening several new credit accounts in a short period can be seen as risky behavior and may lower your score.

So, what can you do to build and maintain a healthy credit profile? Pay bills on time: Consistently paying your bills by their due dates is one of the best ways to build good credit.
Keep credit card balances low: Aim to keep your credit card balances well below the credit limit to demonstrate responsible credit utilization. The banks say to keep your utilization under 30%, Brown Assets Group educates their clients to keep their utilization under 10%.

Monitor your credit report regularly: Check your credit report from each bureau regularly to ensure accuracy and to catch any errors that could be dragging down your score. Having a reputable Credit Monitoring is essential when looking to improve your credit.

Limit new credit applications: Be cautious about opening new credit accounts unless absolutely necessary, as each application triggers a hard inquiry that can temporarily lower your score.

Be patient and persistent: Building a strong credit profile takes time. Stay disciplined in your financial habits, and over time you'll see your score improve.

In conclusion, understanding the factors that influence your credit score and taking proactive steps to manage your credit responsibly is key to building and maintaining a healthy credit profile. By staying informed and making wise financial decisions, you can set yourself up for success now and in the future.

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