How is the Credit Score Calculated?
Your credit score is used as a tool to help judge how likely you are to default on a loan.
This somewhat mysterious number is also often used by insurance companies to set your insurance premiums.
A low score may even hurt your chances to get a new job as some employers now check credit information prior to hiring a new employee.
Everyday it seems more and more of our life is tied to this number that few people know what it is and how it is calculated.
A higher number for your rating is better.
You will find it much easier to obtain loans and favorable interest rates if your rating is high.
Ratings are determined by using data from your credit report.
The information is entered into a software program that will determine your score after analyzing the data.
The three main reporting agencies do not use the exact same scoring model.
As a result of this you actually have three different ratings; all three should however be close to one another.
You may often hear your credit score called a FICO score.
This is because the software used to create scoring was first programmed by a company called Fair Isaac Corporation or FICA for short.
The main factors in determining your credit score is your payment history, amounts you owe, length of credit history, new credit and types used.
Payment history make up about 35% of your rating and includes such things as total past due accounts, how long you have been past due, how long since you had a past due payment, number of accounts paid on time and any accounts placed for collection.
The second biggest factor in your rating is the amount you owe which makes up around 30% of your score.
This takes into account how much you owe, the current balance on any loans against the original loan balance, length of time the accounts have been open, number of zero balance accounts and how much of your account limits you are currently using.
The length of your history makes up 15% of your total rating.
This includes how long the accounts have been open, time since last activity.
The longer you have a good credit history the better your score.
New debt accounts make up about 10% of your rating.
This is the number of accounts you have opened recently and their proportion to your total accounts The types of you use affect about 10% of your rating.
Your score is improved if you have a mixture of accounts such as mortgages, installment loans and revolving lines.
This somewhat mysterious number is also often used by insurance companies to set your insurance premiums.
A low score may even hurt your chances to get a new job as some employers now check credit information prior to hiring a new employee.
Everyday it seems more and more of our life is tied to this number that few people know what it is and how it is calculated.
A higher number for your rating is better.
You will find it much easier to obtain loans and favorable interest rates if your rating is high.
Ratings are determined by using data from your credit report.
The information is entered into a software program that will determine your score after analyzing the data.
The three main reporting agencies do not use the exact same scoring model.
As a result of this you actually have three different ratings; all three should however be close to one another.
You may often hear your credit score called a FICO score.
This is because the software used to create scoring was first programmed by a company called Fair Isaac Corporation or FICA for short.
The main factors in determining your credit score is your payment history, amounts you owe, length of credit history, new credit and types used.
Payment history make up about 35% of your rating and includes such things as total past due accounts, how long you have been past due, how long since you had a past due payment, number of accounts paid on time and any accounts placed for collection.
The second biggest factor in your rating is the amount you owe which makes up around 30% of your score.
This takes into account how much you owe, the current balance on any loans against the original loan balance, length of time the accounts have been open, number of zero balance accounts and how much of your account limits you are currently using.
The length of your history makes up 15% of your total rating.
This includes how long the accounts have been open, time since last activity.
The longer you have a good credit history the better your score.
New debt accounts make up about 10% of your rating.
This is the number of accounts you have opened recently and their proportion to your total accounts The types of you use affect about 10% of your rating.
Your score is improved if you have a mixture of accounts such as mortgages, installment loans and revolving lines.
