There are five major components that factor into your credit score.

(1) Payment History – do you pay your bills on time; do you pay in full. This accounts for 35% of your score. The most recent six months have the greatest impact on the score and the largest payment also has the most weight. For most individuals this will be their mortgage payment followed by car payments, student loans and credit card payments. Bankruptcies
Judgments, liens and collections/charge-offs will negatively impact your score as well as late payments. The severity of the delinquency is determined by the amount, how much time has passed and the number of times you were late on an account, measured in 30, 60, 90 days or greater.

(2)Balances Carried – actual dollar amounts that you owe on various accounts in relation to how much credit you have available. This accounts for 30% of your score. Mortgages and installment loans are not factored into this as much because they are not really a revolving credit amount. It is usually set for a period of time. If you are planning on applying for a new mortgage, do not pay off the collections because you are then starting the collection period all over again and your score will be lower. Pay off the collection with the new loan at closing. Once you have the new loan, you can handle a lower score.

 
This information is provided in an effort to help you gather and organize the information necessary to file your individual or small business income tax return. While these financial tools are not a substitute for financial advice from a qualified professional, they can be used as a starting point in your decision making process.