What Comprises Your Credit Score
By Lisa Roberts
In the simplest terms your score is your history calculated in figures. There are many methods which can be used to calculate your score but the most common method is the FICO. FICO was developed by the Fair Isaac Company and is the preferred method used by most lending companies. Your score determines whether a lender will approve your application or not or whether a lender will give you less rates on your payments or not.
Credit scores or FICO scores generally range form a low of 340 to a high of 850. Ideally, you should aim for a score of at least 700 or more. If you get a score of 600 and below, creditors will likely consider you as a high risk borrower.
Knowing how your score or your FICO score is calculated will help you become more aware of your spending and your payment habits. Let’s consider the break-down of categories used to sum up your score.
What comprises your score?
35% of your score depends on how good of a payer you are. If you make it a point to pay all your bills promptly, you should have no problem obtaining the complete 35% of your score. However, if you’re in the habit of delaying or skipping payments, or if you defaulted on some of your debts, your score will also be affected.
30% of your score is calculated based on the level of your debts. Do you always maximize the use of your limit? Were there instances that you’ve even exceeded your limit? If so, then you’ll likely get a low score on your utilization. Hence, borrowers are advised to keep spending below their limit. As much as possible, keep your balances at least 50% lower or even less of your limit
15% goes to the length of your history. How long has it been since you started your report? The longer your length of history is, the better your score will be. This is because, the more information your creditors can get out of your report, the better they can gauge you as a borrower. This is why it is very important to establish a good report as early as you possibly can. Also, this is the reason why you should always think twice before closing accounts that you’ve had for a long time.
10% of your score is based on inquiries. If you’re in the habit of submitting card applications just for the heck of it, your score can be affected. Also, whenever a creditor denies your application, it can also have an impact on your FICO score. Thus, before submitting any application, see to it that you really intend to get an approval out of it.
The other 10% of your score is based on mix of credit. If you have a card account, a car loan, a mortgage loan and various types of insurance policies, it will show your flexibility and dependability as a creditor. If you’ve been able to manage all these different types of accounts without any problems on your payments, then you’ll likely get
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Liz Roberts is a loan consultant with Loan Hunt Finance and has been providing consumers and business owners with home loans financing since 1989. For years she has helped people with home loan problems especially pertaining to home mortgage loans and bad home loans. Copyright 2007
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