Credit/Debit Card Search

Components That Make Up a Credit Score

By: Tom Peters

A credit score is part of your credit report, which is a file on your financial life of borrowing money. The credit score is made up of various components that we explain in the following paragraphs.  The FICO model is widely used for credit scoring and its beginnings can be traced backed to the 1950 era.

Your credit score has a major influence on what type of credit financial institutions will lend you and at what interest rates and additional conditions they may apply to the lending of credit.

To have a credit score you need to have a credit file with a history of at least one borrowing of credit.  The first component is paying on time. This is the largest scoring component at about 35%. This is why it is important to make all credit payments on time and if you cannot then contact your finance lender as soon as possible to agree on alternative arrangements. The score within this category is affect by non- payment on time but also how often this has happen, how much are the payments in arrears and how long were the payments in arrears for.

The next largest category is the amount and type of debt. This category is about 30% of your total score.  This category takes in all the debt you have, the mix of debt, the number of debt accounts you have and the overall total debt figure.  The balance of debt across your credit cards and revolving line of credit is factored into the calculation, including the amount of available credit not being used.

The number of years you have had debt is worth about 15% in the scoring formula.  You can get a good positive score rating if you have had no credit problems with your accounts and have held those accounts for a number of years. The portfolio of credit accounts you have is worth about 10% of the formula. 

Depending on the type of loan you have applied for, the lender will analyse this type of loan you have had with other credit providers.  The last category also worth 10% of the credit score is your activity over the past six months in applying for credit. The higher the number of applications, the lower your score will be.

The FICO credit score range is from 300 to 850. The average score is about 720.  Credit scores can be controversial and they are not always accurate. Some banks are not using this approach anymore, however if you are submitting an application to a lender that does use FICO, then its best to be aware of this scoring system, so you can improve it as necessary.

Comments:
Name: *
E-mail: *
Location (City, Country):
Comment: *
* - Required Fields.
Save information
Notify me

Captcha:


RSS Related Credit articles

Quick and Painless: How To Easily Budget Your Finances

While most of us will utilize plans for vacations, plans for the holidays, or plan out our weekly to-do lists, often planning how we spend our money is something we never get around to doing. Simply put, a budget is a plan, not necessarily an elaborate plan, for where to put our money.

Tips for Finding the Right Business Card

As a business manager and investor, you will probably find that choosing the right business credit card to use within your business is quite a daunting task. With so many different options available, there is no end of choices for you to make, and you need to choose the business card that fulfills the requirements that your business may have.

Reasons that make debt consolidation preferable for the debtors

Debt consolidation is one of the most common financial tools that are taken into account by the debtors who are going through dire financial straits. What can debt consolidation companies do and what can not?

All credit articles ?


Follow Us: Twitter

Useful Credit Cards Tips »

Credit cards can become extremely expensive, especially if you choose one that's not right for you. The type of card and the fees and features of the card are all factors that come into play when you're choosing a credit card.

Easy to get Credit Cards Online Applications | About Us | Contact Us | Privacy Policy | How Credit Cards Work - Credit Articles