What Is a Credit Score?

The majority of people understand the basics, like how failing to make a payment will cause your score to go down, but there are a number of complexities that trip up the average consumer.

If you pay your debts on time, don’t carry too much debt on any one card, don’t close older accounts unless absolutely necessary and only apply for new credit when you have to, you will generally be in good shape.


However, it is important to keep yourself informed so you can maintain a credit score that accurately reflects your consumer status.

A credit score is a three digit number calculated from your data-rich credit report and is a significant factor used by lenders to determine your creditworthiness.

Lenders use your credit report in order to judge your reliability as a loan candidate. Your credit report indicates your ability to handle debt responsibly and will help banks decide if you are a desirable loan customer.

A high credit score can help you lock in low annual percentage rate (APR) rates or secure special deals on loans. A bad credit report may prevent you from securing loans and can damage your ability to buy a car, open a credit card or rent a home.

A history of inability to manage your credit successfully will make lenders uncomfortable about trusting you with additional funds in the future.

You are entitled to a free copy of your credit report once a year, an offer you should take advantage of. When you do receive your credit report, check to ensure the figures are accurate and act quickly to correct any mistakes.

This may include any clerical errors, identity theft issues or incorrect information. If your credit score is low, you should begin working on a financial rehabilitation plan, either on your own or with a certified debt counselor, to begin correcting your bad debt habits.

What Makes Up A Credit Score?

Payment History

35 percent of your credit score is made up by your payment history. This includes late payments, collections, and even bankruptcies and tax liens. Each type of account will stay on your credit report a specified period of time and each type of derogatory will hurt your score differently. Blue Water Credit works to remove accounts that are not 100% accurate OR not 100% verifiable. Our removal rate is around 70%.

Debt Ratio

30 percent of your credit score is your debt ratio. Your debt ratio is the amount of revolving credit (i.e. credit cards) you owe in relation to the amount of credit you have available. For instance, if your credit limit is $10,000 and your current balance is $5,000, your debt ratio would be 50%. To maximize your score, we recommend to keep balances below 30% of the credit limit.

Length of Credit

15 percent of your credit score is your length of credit. Your length of credit is how long you have had credit. At face value, this seems like something you couldn’t really do anything to fix. However, there are ways you can hurt yourself here. If you close out your older cards, even if they have higher interest rates, it will hurt your score. The credit scoring model has no memory of credit cards you close: if you close out that fifteen year old card you will get no credit for it!

Types of Credit

10 percent of your credit score is the types of credit you have listed on your report. Types of credit include revolving, installment and mortgage loans. By having different kinds of credit open, you show creditors that you are responsible and able to handle different kinds of account types.

Credit Inquiries

10 percent of your credit score are inquiries. Inquiries are marked on your credit report when you ask for new credit (i.e. when you apply for a home loan). Inquiries made by yourself or for unsolicited offers do not count against your score, but are shown on your report. It is important to note than when searching for a home you are allowed unlimited inquiries over a 15-30 day period since it is assumed you are rate shopping.

“I am now able to purchase dream home.”

  • Thank you Blue Water Credit and the entire team for helping me with my situation. It’s because of your business that I am now able to purchase my dream home. I couldn’t have done it without your expertise, knowledge and support. I am very grateful.”–Tina K. (Roseville, CA)

Learn More

Now that we peaked your interest, learn more about credit and how credit scores affect you. Easily enter in your information and Blue Water Credit will send you your free eBook on Credit.

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