How Is Your Credit Score Computed?
You get your annual credit score report alright. But do you have an idea how these numbers are computed? If you’re on the low end of credit score range is currently low, how do you intend to bring it up? Managing one’s credit score can be a problem, especially for those who have no idea as to how the experts arrive at these numbers.
What’s a credit score?
Basically, a credit score is a 3-digit assessment of your current financial standing. Banks and loaning institutions use it to determine your performance as far as paying your bills is concerned. Needless to say, they use it as a basis for approving your loan, giving you a credit card, or in some cases, hiring you on a certain job.
Credit Score Range
Your credit score can go as low as 300 to as high as 850. The higher your credit score is, the better you look from a lender’s point of view. A good credit score starts at 700. If that’s your score in your last credit review, then you’re on the good side. If you fair lower than 700, then that’s a signal to start repairing your score.
How Credit Score is Computed
There are different factors that can affect your credit score. Certain factors carry more weight than the others. So if you want to repair your credit score, you have to focus on the ones that actually affect your overall rating.
Payment History has a ratio of 35%. This pertains to your performance as a debtor. How well do you pay your last credit? Do you have overdue bills or do you pay in full every time? If you have a history of bankruptcy, this is the part is affected the most. Being a delinquent payer is not going to help improve your credit score as well.
Debt Level accounts for 30% of your credit score. What is your current credit limit? And how much of it have you already consumed? Debt level pertains to credit utilization. If you want a better credit score, don’t maximize your credit line. The closer you are to your limits, the lower your score is going to be. This aspect is affected by credit card debts the most.
The Length of your Credit History is considered as well and it is computed at 15%. The longer your history, the better your score will be in this aspect. The longer your own your credit card, the better your credit score is.
Inquiries make up 10%. If you ask too much about how to apply for a loan or a credit card, this part is affected. Inquiring too much only means you need money more than normal.
Credit Mix is also 10%. Different loans give you a higher score in this one. If you are paying for a credit card, a cash loan, mortgage, and a vehicle amortization every month and you perform well each time, then the score for this part is going to be high for you.
