Your Credit Score Has Five Inputs. Only Two Actually Matter
Bottom line
One late payment can drop your score 90 points overnight. here's exactly why.
In this guide
What it is
Your credit score is a three digit number between 300 and 850 that tells lenders how reliably you pay back money you owe.
By the numbers
If your score drops from 760 to 650 because of one missed payment on a $3,000 credit card balance, your interest rate on a new car loan can jump from 5% to 11%. costing you $1,800 extra over a four year loan.
How it works
Your score is calculated from five factors: payment history (35%), amounts owed (30%), length of credit history (15%), new credit inquiries (10%), and credit mix (10%). Miss a payment and the biggest slice takes a hit immediately. Pay down your balance and the second biggest slice improves within one billing cycle.
The catch
Closing an old credit card actually hurts your score even if you never use it. Closing it reduces your total available credit, which raises your utilization ratio (the percentage of your credit limit you are currently using). and a higher utilization ratio drags your score down even though you did nothing that looks irresponsible.
What to check next
Log into your bank or credit card's website this week and check your current credit utilization ratio. keep it below 30% of your total limit.
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