The Five Parts of Your Credit Score
There is no doubt about it the economy is in a spiral downturn. Many of us have been facing financial troubles daily; with all of the troubles leading to bad effects on our credit score.
Loan application approvals for items like homes, boats, or cars rely heavily on your credit score.
Many are confused by what a credit score is and how the number is determined. This article will help you understand how your credit score is derived.
Your credit score is derived from five main variables. They include the type of credit, how many inquiries have been made to issue new credit to you, how long your file is, what you owe to others and how you pay your bills.
Each of the variables affect your score differently. Not all are equally looked at when deriving your credit worthiness. The payment history is what weights your score the most at 35% followed by outstanding debt at 30%. The other three have less of an impact and weigh in at 15% for depth of file and at 10% for both Inquiries for New Credit and for types of credit
Now, we will proceed into more detail for these individual categories and what they are based on.
The first category we will discuss is your payment history. It is the biggest factor in determining your credit worthiness. It weighs in at 35% of your total score and tells whether or not you can and do pay your bills when you are supposed to. If you paid on time, they say so. If you are more than 30 days late they tell that also.
The second category that holds the most weight at 30% is outstanding debt. This simply reflects on the outstanding amounts of money that you still owe to other companies. To be able to apply for any sort of finance, it is important that this is kept to a minimum. This will show that you are able to keep up with repayments. If you have a large amount of money outstanding in debt, you could be digging your own grave.
Your depth file weight at 15% is affected by the amount of time you have held credit. The age of accounts affect your score. That credit card you opened in college, if left open and active, will boost your score up.
At 10% weights in both inquiries and types of credit against your score. The Inquiries of New Credit show who and how often your report has been looked at in order to extend credit to you, this is called a inquiry; the fewer inquiries against your report the better.
At 10% weight is the final category called types of credit. This categorizes the type of financing you presently have and have held in the past. Some can hurt your credit while others bolster it. An instalment loan is held in higher esteem than a loan from a financing company.
By understanding what makes up a credit score, you can take control of your finances and secure your future!
Loan application approvals for items like homes, boats, or cars rely heavily on your credit score.
Many are confused by what a credit score is and how the number is determined. This article will help you understand how your credit score is derived.
Your credit score is derived from five main variables. They include the type of credit, how many inquiries have been made to issue new credit to you, how long your file is, what you owe to others and how you pay your bills.
Each of the variables affect your score differently. Not all are equally looked at when deriving your credit worthiness. The payment history is what weights your score the most at 35% followed by outstanding debt at 30%. The other three have less of an impact and weigh in at 15% for depth of file and at 10% for both Inquiries for New Credit and for types of credit
Now, we will proceed into more detail for these individual categories and what they are based on.
The first category we will discuss is your payment history. It is the biggest factor in determining your credit worthiness. It weighs in at 35% of your total score and tells whether or not you can and do pay your bills when you are supposed to. If you paid on time, they say so. If you are more than 30 days late they tell that also.
The second category that holds the most weight at 30% is outstanding debt. This simply reflects on the outstanding amounts of money that you still owe to other companies. To be able to apply for any sort of finance, it is important that this is kept to a minimum. This will show that you are able to keep up with repayments. If you have a large amount of money outstanding in debt, you could be digging your own grave.
Your depth file weight at 15% is affected by the amount of time you have held credit. The age of accounts affect your score. That credit card you opened in college, if left open and active, will boost your score up.
At 10% weights in both inquiries and types of credit against your score. The Inquiries of New Credit show who and how often your report has been looked at in order to extend credit to you, this is called a inquiry; the fewer inquiries against your report the better.
At 10% weight is the final category called types of credit. This categorizes the type of financing you presently have and have held in the past. Some can hurt your credit while others bolster it. An instalment loan is held in higher esteem than a loan from a financing company.
By understanding what makes up a credit score, you can take control of your finances and secure your future!
About the Author:
Wendy Polisi is Vice-President of Finance the Dream, the nations top Lease to Buy, Lease to Purchase and Rent to Own Program. To learn more about increasing credit scores, please visit them at liferebooted.org " the blog that tells you everything you need to know about rebuilding your life after financial setback.