How Credit Score Is Calculated
The parameter to judge your financial health at any point in time in our society is through the credit score. The credit score is that figure that determines whether or not you should be given credit by a lender or not, and the kind of credit facilities suitable for you. The risk you constitute to lender is also represented by the credit score. The credit score also influences the amount of interest you will be charged against the loan based on the pattern of your credit history and other indices that form the credit score. Here are some the indices taken into consideration in the calculation of your credit score.
PAYMENT HISTORY
Your credit file contains the history of your payments in the past and the pattern of your payment now. Your payment history takes 35% of the marks that constitute the credit score. When you make payments promptly and responsibly, you earn a good chunk of this 35%. Perpetual lateness in making payments against your bills, irresponsible payment patterns, and other negative tendencies make you to earn a low score on payment history and may ultimately lead to you being disqualified from most forms of credit that are available to those who have a good payment history.
CREDIT HISTORY
Your credit history is also contained in the credit file. This takes about 30% of the weight of the credit score. The credit history will show the pattern in the credit reports related to you. It will also show the types of credit you take and the frequency of them. While taking credit is necessary in todayís world, it is advisable to be prudent and responsible about it.
LENGTH OF CREDIT HISTORY
Another factor, which determines the new credit enquiries in your credit file forms 10% of the credit score. The number of new credit enquiries, as well as the amount of the new credit, counts for or against you. The ability to understand the appropriate new credit enquiries will earn you high marks on the credit score, while ignorance of them will give you a low credit score and make you to be a high risk debtor.
TYPES OF CREDIT
The types of credit forms 10% of the weight of a credit score. This assists the lender to assess your credit pattern. It also enables the service providers, your landlord, and others who may be interested in your credit profile to form an opinion about the level of risk involved in providing you with their services.