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The importance of credit score is just the talk of the town. You can see nearly on every credit related web source phrases like "credit score is the basic criterion of creditors' decision whether to approve you or not for a credit card deal", or "maintaining good credit score is essential for your credit history", or something like "be careful, this or that can damage your credit score and you will not be able to qualify for credit card offers".

Every responsible credit card holder actually knows what role his or her credit score plays in their financial life. But have you ever wondered how exactly the scoring system works, and how banks decide on your creditworthiness?

Here, in the US, credit score is a tree-digit figure, which ranges from 300 to 900. The major part of the US card holders has a score of 600-700. These points are conventional. They are calculated by credit bureaus on the base of your information containing in your credit report. The three major US credit bureaus are Equifax, Experian, and TransUnion.

There are also different credit score calculation systems, such as FICO (introduced by Fair Isaac Corporation), VantageScore, CE Score and NextGen systems. But the most common one is FICO rating.

The exact formulas for calculating the score are kept in secret in order to protect credit consumers from credit card fraudsters' predatory practices. However, FAIR Isaac Corp. has disclosed several factors that are taken into account when indexing credit score.

Your Credit Score Ingredients

Your past credit card payments record is one of the key components of your credit score. This is about 35% of your score. If you are accurate with your payments, then 1/3 of your credit reputation is good. Total debt ratio make up 30% of the score. The general lifetime of your credit history, which is about 15%, types of credit you used (secured credit cards and unsecured) - it is 10% of your rating, information about your recent credit requests - also 10% are the major factors that make up your credit score.

But it is not just the above-mentioned aspects that are taken into consideration when it comes to getting approved for a credit card deal. For instance, your employment history (that is not regarded when in calculating your credit score) is of great importance for your lender. Unemployed people will most probably not be able to qualify for a mortgage loan, even if your FICO rating is high.

There are other factors that can affect your credit score. Your criminal record, for instance, different administrative fines and other penalties imposed by court are undesirable for your credit rating, to put it mildly. Having too many credit lines can also afflict your score. In this case you present a bad risk for credit issuers. Especially if you decide to cancel several credit cards. It will also have a negative effect on your credit score.

So, now you know the way your credit score is calculated. And knowledge is one of the most powerful things you can have in your arsenal in the fight for maintaining a good credit score that will allow you to win best credit cards.

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Comments

Calista K. McFerrson, 01:45 AM, March 26, 2008
Thanks for useful and interesting information. I had some common knowledge about FICO score and its range. But didn\'t really know about the components.

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