<\/span><\/h2>\n<\/span><\/p>\nCredit score is simply an analysis and ranking of your creditworthiness relative to the rest of the population based on a summary of your credit history. Fair Isaac and Company created a program that analyzes the numbers, known as a FICO score. The three credit reporting agencies (Experian, Equifax and TransUnion) utilize your FICO credit score to determine your creditworthiness and provide the information to the lenders.<\/span><\/p>\nThe credit bureaus have a record of your credit history. They have full access to the history of every loan and credit card debt you have ever had, as well as every payment you’ve ever made. You may be sure that the credit bureaus are aware of anything financial if it includes your social security number. Your ranking is determined by the information put into the FICO software.<\/span><\/p>\nThough not the only score available, FICO credit score information is the most widely utilized and highly regarded by lenders.<\/span><\/p>\n<\/span>Calculation of Credit Scores<\/b><\/span><\/h2>\nUsing an algorithm or mathematical model, credit scoring firms like FICO and credit reporting agencies generate credit scores based on the information in your credit reports. This kind of score is occasionally referred to as a “credit risk score” since it ostensibly forecasts the likelihood that the customer would miss a payment on a loan or other kind of credit in the future.<\/span><\/p>\nDue to the numerous distinct scoring models used by FICO, you actually have more than one FICO score. So, depending on the scoring model\u2014such as FICO, FICO 8, FICO 9, or FICO 10T\u2014used to calculate it and the credit reporting bureau that produced the underlying credit report, your score will probably change. For the auto, credit card, and mortgage industries, among others, FICO also provides variants of its scoring algorithms that are industry-specific.<\/span><\/p>\n<\/span>Factors Affecting the Credit Scores<\/b><\/span><\/h2>\nAlthough FICO withholds the precise formula it uses to determine credit scores, it does take into account the following elements:<\/span><\/p>\n\n- Your payment history (35%).<\/b> If you have filed for bankruptcy, had an account sent to collections, or paid payments late, these things will lower your credit score. Your score decreases as the problem becomes more recent.<\/span><\/li>\n
- Amounts owed (30%).<\/b> Your credit score will likely suffer if you owe money that is almost at your credit limit. Additionally, having several accounts with credit card balances could harm your score because it will appear that you are overextended.<\/span><\/li>\n
- Length of your credit history (15%).<\/b> It’s better if your accounts have been active for a while.<\/span><\/li>\n
- New credit (10%).<\/b> Your score may suffer if you’ve opened a lot of new accounts recently.<\/span><\/li>\n
- Credit mix (10%).<\/b> A “healthy mix” of credit types, including both revolving and installment accounts, is what FICO claims it is searching for.<\/span><\/li>\n<\/ul>\n
The percentages represent the estimated weights assigned to each component in calculating your credit score. As you can see, your payment history and the total amount you owe on all of your credit lines (loans, credit cards, etc.) account for 65% of your credit score and should therefore be the focus of your attention.<\/span><\/p>\nKeep up with your loan and credit card payments due to the fact that a late payment could result in the lender reporting you to a credit bureau (some of the lenders will wait until you miss two payments to report the delinquency). Your credit report contains negative credit history for around seven years. The most adverse factors include accounts that are sent to collection agencies, loans that you default on (or if you file for bankruptcy), and more current issues are given more weight than older ones.\u00a0<\/span><\/p>\nBanks prefer to see that you have a variety of credit. Lenders will often feel more secure if you have a balanced mix of loans and credit cards (school loans, mortgage loan). Of course, having too large of a loan balance will have a negative impact on your credit rating.<\/span><\/p>\n<\/span>Good Credit Score Definition<\/b><\/span><\/h2>\nThe range of FICO scores is 300 to 900. Although the highest credit score is 900, most people are unlikely to reach it. The average credit score in the United States is 723, according to FICO. In other words, 50% of people have scores above 723, while the other 50% have scores below it. An outstanding score is higher than the mid-700s. Over 720 indicates that you are “very good.” Scores between 670 and 720 are considered “good,” and at 650 and lower, a declining trend with doubtful credit prospects begins. Though they are growing increasingly significant, credit scores aren’t the sole consideration when applying for credit, it should be highlighted.<\/span><\/p>\nYou could previously acquire a moderate to low interest rate with a “good” score. To acquire the best interest rates, though, amid the current credit crunch, you’ll probably need to be consistently in the very good to excellent credit score range. If you do not have an excellent or very good score, you can still receive credit, but you’ll probably pay a higher interest rate.<\/span><\/p>\n