Did you ever wonder how financial institutions come up with your credit score? Do you wander where they get those numbers? Think of your credit score like a test score. Like people adding up all the good things that you have done, all the wrong things that you have ever done and for poise and personality. They add these all together and that’s how they rate you. Well your credit score is calculated in the same way only banks and lenders are using your financial history as your assignments and test scores.
Your credit score can range anywhere from three hundred to nine hundred. Thirty-five percent of the score is based on your payment history. The banks and lenders want to see if you pay your monthly bills on time and if any are overdue. That’s why it is so important to pay your bills before or on the due date. Every time you pay late, that goes on record. They also want to know if any bills have been turned into a collection agency.
Thirty percent of your score is based on your outstanding debt. This is determined by how much you owe on current loans and credit cards. If you have credit cards at their maximum limit then your score will be lower.
Fifteen percent of your credit score is based on the length of time that you have credit. If you have already established good credit and have maintained it then the better it is for you. If you have no credit history this can be as bad as having a poor credit history. The more information that lenders can get about how your past credit history has been the more they can predict how your future actions will be. Ten percent of your score is calculated by the number of inquiries on your credit report by other lending companies or credit cards. If you have applied to a lot of credit card offers or loans, whether you were approved or denied, the inquires will still be on your report. These are bad for your score because that could indicate that you need money or that you may be taking on a lot of debt and that you don’t care how you get there. The more recent the inquiries are, the lower your score will be. It is a good idea to not apply to every credit card offer that comes in the mail, but maybe look for the ones that have the better interest rates and lower fees or no fees at all.
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