There is no doubt about it the economy is in a spiral downturn. Many of us have been facing financial troubles daily; with all of the troubles leading to bad effects on our credit score.

Loan application approvals for items like homes, boats, or cars rely heavily on your credit score.

There has been a lot of confusion of what a credit score really is and how it is worked out. This article is aimed at clearing up all the myths in regards to what makes up a credit score, by providing you with the simple facts.

Your credit score is derived from five main variables. They include the type of credit, how many inquiries have been made to issue new credit to you, how long your file is, what you owe to others and how you pay your bills.

These five variables affect or weigh on your score differently. Payment history at 35 % and outstanding debt at 30% are the heavy hitters. While depth of file is at 15% and both Inquiries and types of credit are both at 10%, these together make up the total score when all are weighted together.

Looking further into the categories to discover exactly what they are based on, we will press on.

The first category of payment history speaks for its self. It is one of the largest weighing factors, making up 35% of your final credit score. It simply looks at whether or not you have paid your bills on time. When ever you receive a bill you are usually given a certain time period by which you are expected to pay it within. If you meet that time limit, the creditor will report that you have made your payment on time. If you pay more than 30 days past the due date, the creditor will report your payment as delinquent.

Outstanding debt ranks second in its effect at 30% on your credit report. Basically this tells how much you still owe the companies that lent money to you. In order to obtain new financing, this needs to be kept low in order to show that you can meet the repayment schedule. A large burden of debt can be your downfall.

Weighing in against your credit number is the depth of file, at 15%. This number simply looks at the time period of your credit history. For instance if you opened a credit card in 1978 and still have it active it will benefit your score.

The remaining two both at 10% are Inquires / New Credit and Types of Credit. The Inquires / New credit basically looks at past inquires that were made when you applied for credit. The fewer amount of inquires you have, the better it is when applying for new credit.

Finally, the types of credit category inventories the type of financing you have received. For instance an instalment loan is more favorable than a financing company

Understanding your credit score is essential to take control of your financial future

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