How to Determine Your Credit Score and What Is Your Risk Level

27 February 2023

Credit scores are three-digit numbers lenders use to assess your credit risk and whether or not you should be approved for a loan, credit card or other form of credit. They also determine how much interest you’ll pay and how often rates may change.

Calculating your credit score is the most accurate way to understand it. There are multiple elements that go into creating a score, each having an impact. Here are some of the major ones:

Payment history (late payments, charge-offs and debt collections) accounts for around 30% of your credit score. The better your payment record is, the higher your score will be in the long run.

Credit cards and other lines of credit account for about 30% of your score; if you owe more than 30% of their limit, this will negatively affect your rating.

New credit, such as credit card applications and bank account openings, accounts for approximately 10% of your overall score. While adding new debt can help build up a stronger credit history, it could also lower it if you apply for too much at once or take out large loans without having an established payment record.

Your credit history accounts for approximately 15% of your score. The longer your history, the more likely a lender is to extend you further credit in the future.

Your credit mix, or the combination of accounts and loans you own, is another factor that affects your score. A diverse credit mix demonstrates your capacity for managing various financial obligations.

Mortgage loans, auto loans, credit cards, finance company accounts and other forms of credit all play a role in maintaining a healthy credit mix. A healthy mix is key for maintaining your high credit score and may help you qualify for different kinds of financing in the future.

Your risk level is another important consideration. This indicates the probability that you’ll default on a loan or credit card, and is determined by factors like your credit score and debt-to-income ratio. A low risk score can often translate to low interest rates on credit, while one with high risks has an increased chance of incurring higher costs or defaulting on a loan.