Credit Score: 5 Major Factors That Make Up Your Score
Credit History
The eyes are the mirror of the soul. Your credit score is the mirror of your financial standing. When it comes to applying for a credit card, negotiating better credit card deals or your reputation as a borrower in general, your credit score is the basic criterion credit issuers look at in order to evaluate their potential risk. However, there is no need in talking about the importance of your credit score. But do you know what exactly your credit score is?
Credit score is a combination of several components that is figured in a 3 digit number. Different independent companies and credit bureaus created various systems of calculating credit score. Today, FICO scoring system that was developed by Fair Isaac Corporation in 1989 is the most popular and referred to by most credit companies.
FICO score ranges from 0 to 850. 0 to 350 points means you have no credit and you are eligible to only no credit cards or secured deals. If your score is between 350 and 619 you can qualify for bad credit card and secured cards as well. A score of 620 to 659 is considered fair. This means that you are still a bad risk for lenders, but with this score you can get an offer with pretty decent terms. If your score is 660 to 750, you can get good credit cards with enticing terms, perks and rewards programs. And once you reach 750, you get approved for the creme de la creme of the credit card market.
But now, let's examine your credit score in details. What is it composed of?
There are 5 major factors that influence your credit score. All of them are to be found in your credit report.
Your Payment History - 35%
The records of your credit card payments and other pay offs are the biggest and the most important part of your FICO score. Positive payment history adds up points to your score. Negative records can easily lower it.
The Amount of Money You Owe - 30%
Large outstanding balances can scare a creditor off. If you manage to keep your credit utilization below 30% of your available credit line, you will not just raise your score, you will also prove credit providers to be a reliable and creditworthy credit consumer.
Length of Your Credit History - 15%
This aspect is quite clear. The longer your credit history is, the more chances to get a credit card or a loan you have.
New Credit Accounts -10% if you open several new credit accounts in a row over a short period of time, lenders might think that you are experiencing financial problems. Besides, this can drop your credit score.
Types of Credit - 10%
It will pay dividends to your credit score growth, if you have a healthy mix of different types of credit (personal lines of credit, credit cards, and installment loans).
There are other factors that affect your credit score. But the above-mentioned are the basic ones. However, you should keep in mind that even if these components of your credit score are fine, credit issuers can check some other sources of information when making a credit decision. Some lenders can ask for your employment history, for instance.
Your race, age, color, sex, ethnic background, marital status, income level, occupation are not taken into consideration by credit bureaus when calculating your FICO score.
Copyright © 2007-2008 www.unioncreditreport.com. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Comments
No Comments
If you have something to say, please leave your comments below.
|
Bad Credit History |
Bankruptcy |
Business Credit Cards |
|
Choosing Credit Card |
Credit Card Rewards |
Credit History |
|
No Credit History |
Security and Protection |
Understanding Credit Cards |
|
Using Credit Cards |
