2.

Steps to Improve Your Credit Score

✅ Pay Bills on Time

 Automate payments to avoid late fees.

 Even one missed payment can significantly impact your score.

✅ Reduce Credit Utilization

 Keep balances below 30% of your total available credit.

 If possible, pay off your balance in full each month.

✅ Maintain Long-Term Credit Accounts

 The longer your credit history, the better your score.

 Avoid closing old accounts unnecessarily.

✅ Limit Hard Inquiries

 Only apply for new credit when necessary.

 Multiple hard inquiries (loan or credit card applications) within a short period lower your
score.

✅ Diversify Your Credit Mix

 A mix of revolving credit (credit cards) and installment loans (personal loans, auto
loans) can help boost your score.
✅ Check Your Credit Report Regularly

 Request a free credit report and check for errors or fraudulent activity.
 Dispute any incorrect information that negatively affects your score.

3. Formula for Estimating Your Credit Score

While credit bureaus use proprietary formulas, a rough estimate can be made using:

For example, if you have:

 100% on-time payments (35% contribution)

 20% credit utilization (30% contribution)
 5 years of credit history (15% contribution)
 1 new inquiry in the last year (10% contribution)
 A mix of credit types (10% contribution)

To calculate a credit score based on the provided information, you'll need to apply the
percentage contributions of each factor to a standard credit score model, like FICO. Here's how
we break it down:

1. On-time Payments (35% Contribution)

 100% on-time payments suggests that you have no missed payments.

 For this factor, assume you get the full contribution (35% of your score).
 Contribution to score = 35% × 850 (highest possible score) = 297.5 points.

2. Credit Utilization (30% Contribution)

 20% credit utilization is considered excellent. Credit utilization refers to how much of
your available credit you're using. Lower utilization is better.
 For this factor, assume you get the full contribution (30% of your score).
 Contribution to score = 30% × 850 = 255 points.

3. Credit History (15% Contribution)

 5 years of credit history is solid and should positively influence your score.
 FICO typically gives 15% to this factor, and a longer credit history generally results in a
higher score.
 Based on a 5-year history, we'll assume an average contribution (let's assign a score of
around 75% of the 15% contribution).
 Contribution to score = 15% × 850 × 0.75 = 95.25 points.
4. New Inquiries (10% Contribution)

 1 new inquiry in the last year indicates only a small impact on your score. Too many
inquiries can negatively impact your score.
 Since this is low, we'll assume you get a good portion of the contribution (around 85% of
the 10% contribution).
 Contribution to score = 10% × 850 × 0.85 = 72.25 points.

5. Credit Mix (10% Contribution)

 A mix of credit types suggests you manage different types of credit (e.g., credit cards,
loans, etc.), which is a positive sign for credit scoring models.
 Assuming you have a good credit mix, we'll assign a high portion of this factor (about
80% of the 10% contribution).
 Contribution to score = 10% × 850 × 0.80 = 68 points.

Final Calculation:

Now, add up the contributions from each factor:

 On-time Payments: 297.5 points

 Credit Utilization: 255 points
 Credit History: 95.25 points
 New Inquiries: 72.25 points
 Credit Mix: 68 points

Total credit score = 297.5 + 255 + 95.25 + 72.25 + 68 = 788 points

Based on the factors, the estimated credit score would be 788 (out of 850). This would be
considered an excellent credit score!
Why Credit Utilization Matters

 Lower is better: A high utilization ratio (above 30%) lowers your credit score.
 Stay below 30%: Experts recommend keeping credit utilization below 30% to maintain
a strong credit score.
 Ideal Utilization: The best credit scores usually have utilization around 1% - 10%.
Credit Mix refers to the variety of credit accounts you have, such as credit cards, loans, and
mortgages. It makes up 10% of your FICO credit score and shows lenders how well you
manage different types of credit.

Types of Credit in a Good Credit Mix

A strong credit mix includes:

✅ Revolving Credit – Credit cards, retail store cards (balances fluctuate).
✅ Installment Loans – Personal loans, car loans, student loans (fixed payments).
✅ Mortgage Loans – Home loans (long-term debt).
✅ Other Loans – Lines of credit, secured loans, etc.
New Credit in Credit Score

New Credit refers to recently opened credit accounts and hard inquiries. It makes up 10% of
your FICO credit score and can temporarily lower your score if you open too many accounts in
a short time.

Formula for Estimating Your Credit Score

While credit bureaus use proprietary formulas, a rough estimate can be made using:

For example, if you have:

 100% on-time payments (35% contribution)

 20% credit utilization (30% contribution)
 5 years of credit history (15% contribution)
 1 new inquiry in the last year (10% contribution)
 A mix of credit types (10% contribution)

To calculate a credit score based on the provided information, you'll need to apply the percentage
contributions of each factor to a standard credit score model, like FICO.

On-time Payments (35% Contribution)

 100% on-time payments suggest that you have no missed payments.

 For this factor, assume you get the full contribution (35% of your score).
 Contribution to score = 35% × 850 (highest possible score) = 297.5 points.

Credit Utilization (30% Contribution)

 20% credit utilization is considered excellent. Credit utilization refers to how much of your
available credit you're using. Lower utilization is better.
 For this factor, assume you get the full contribution (30% of your score).
 Contribution to score = 30% × 850 = 255 points.

Credit History (15% Contribution)

  5 years of credit history is solid and should positively influence your score.
 FICO typically gives 15% to this factor, and a longer credit history generally results in a higher
score.
 Based on a 5-year history, we'll assume an average contribution (let's assign a score of around
75% of the 15% contribution).
 Contribution to score = 15% × 850 × 0.75 = 95.25 points.

New Inquiries (10% Contribution)

 1 new inquiry in the last year indicates only a small impact on your score. Too many inquiries
can negatively impact your score.
 Since this is low, we'll assume you get a good portion of the contribution (around 85% of the 10%
contribution).
 Contribution to score = 10% × 850 × 0.85 = 72.25 points.

5. Credit Mix (10% Contribution)

 A mix of credit types suggests you manage different types of credit (e.g., credit cards, loans,
etc.), which is a positive sign for credit scoring models.
 Assuming you have a good credit mix, we'll assign a high portion of this factor (about 80% of the
10% contribution).
 Contribution to score = 10% × 850 × 0.80 = 68 points.

Final Calculation:

Now, add up the contributions from each factor:

 On-time Payments: 297.5 points

 Credit Utilization: 255 points
 Credit History: 95.25 points
 New Inquiries: 72.25 points
 Credit Mix: 68 points

Total credit score = 297.5 + 255 + 95.25 + 72.25 + 68 = 788 points

Based on the factors, the estimated credit score would be 788 (out of 850). This would be considered an
excellent credit score!