What Goes into Your Credit Score?
The most widely used system in calculating individual credit score is the FICO scoring model, which was created by the Fair Isaac Corporation. The FICO score ranges from a low of 300 to a perfect score of 850. Ideally, consumers must aim for a score of 700 and above to be considered as an excellent client. On the contrary, consumers with a FICO score of 600 and below are considered to be “high risk borrowers” and may be offered higher rates or may not get approved at all. What are the specific factors that make up the FICO system?
Factors that Determine Your Credit Score
Payment history. Payment history makes up 35% of your total score. Are you always on time in submitting your payment? If yes, then you should have no problem getting a perfect rating on this particular category.
Credit line usage. How much of your credit limit do you usually use? Financial experts recommend not using more than 50% of your allotted credit limit. Those who often maximize their credit lines are easily regarded as high risk borrowers because of their spending habits.
Length of credit history. 15% is based on how long you’ve had your credit history. A longer record of credit is an advantage since it shows how good you are in managing accounts and handling debts. This is why students are encouraged to get a student credit card while in college so they can build an early credit history for themselves.
Credit inquiries. Each time a lender inquires about your rating, it is reflected in your credit report. For instance, if you submit multiple loan applications to various firms, it will show in your report. Too many inquiries send out a negative impression to lenders and can pull down your score.
Types of credit used. What kinds of account does your credit report show? If you think that having multiple credit cards will increase your score, you are mistaken. What matters most is how well you handle your credit card payments. On the contrary, having at least two or more different accounts in your name such as mortgage, car loan, personal loan and credit card shows your flexibility and capacity to manage your finances.
Resources for YOU:
Liz Roberts is a freelance writer and loan consultant. The website BadCreditResources.com offers resources that specialize in providing bad credit loans and credit cards for bad credit.
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