Credit Score Factors

What is a credit score?

This is a three-digit number that reflects all the necessary information contained in your credit report. Your bills payment history, the amount of credit you have, and all things that affect your creditworthiness are credit score factors that you should work hard to improve. This is because a three-digit credit score is what lenders depend on to predict if the risk that they’ll take with you will be worth it. When you apply for a credit card, you’ll usually see the required credit score that you’ll need if you want approval. If you come short, you may want to withdraw your application since you’ll definitely just be denied.

How does a credit bureau compute your credit score? What are the credit score factors that you should keep an eye on? Most lenders use the FICO method to compute the credit score. This method weighs in all important credit score factors that can be found in an individual’s credit report. Much like a grade in college, credit score factors have different effects on a credit score. Some of them (considered to be very valuable) take a higher percentage and others take only a few.

Credit score factors include payment history, outstanding debt, the length of credit history, new credit, and the type of credit that you currently have. Of these credit score factors, the one with the highest percentages is the payment history. It comprises 35% of the score. The presence and the amount of late or unpaid bills, derogatory remarks such as collections and bankruptcies will affect this factor. More recent incidents will also have a graver effect on this factor as opposed to events in the past.

Another of the credit score factors is outstanding debt which makes up 30% of the score. Outstanding debt includes the amount of car or home loan that you haven’t paid and the number of credit cards you have that are near their credit limits.

Another of the credit score factors is the length of time you’ve had your credit history. This makes up 15% of your score. Since more information can be gathered from a longer credit history, credit bureaus take length into consideration. This way, they can predict your future actions more accurately through your past.

Of the credit score factors, the least percentage is given to new credit and the type of credit that you have. New credit takes up 10% and the type of credit a cardholder currently has takes up the remaining 10%. New credit accounts will leave a negative remark on your score for a short time. However, when you have had experience with different types of credit accounts, your score will most definitely improve.

All these credit score factors make up the three digits in your credit score that can range from 300 to 850. A score of at least 760 is considered excellent and will qualify the consumer for all rates and loans. A score of 700 to 759 is great credit. A score of 660-699 is good and a score of 620 to 659 is average. 619 and below is considered poor and will give the cardholder a tough time getting a loan or a credit card.


Source: Credit Cards For People With Bad Credit Rating

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