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.
What is a credit score really? How is the number determined? This is article will help you understand what is included in your credit score.
There are 5 different things you need to look at which your credit score is based on. These include your payment history to lenders, how much you owe to these lenders, your depth of file, how many inquiries have dinged your report and what type of credit you have applied for or have now.
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
Looking further into the categories to discover exactly what they are based on, we will press on.
The first category of payment history speaks for its self. It is one of the largest weighing factors, making up 35% of your final credit score. It simply looks at whether or not you have paid your bills on time. When ever you receive a bill you are usually given a certain time period by which you are expected to pay it within. If you meet that time limit, the creditor will report that you have made your payment on time. If you pay more than 30 days past the due date, the creditor will report your payment as delinquent.
Weighing in at 30% on your credit report is outstanding debt. This category shows how much you have to still pay back on the monies you have already borrowed. To apply for more financing, this number should be kept in a range where it shows you can repay the money without any issues. To have a large amount of debt, could be your financial ruin.
The depth of file weighing at 15% simply looks at the time period of your credit history. Even if you dont want to use the credit card that you opened in 1986, you should keep the account active because the age of the account will reflect positively in your score.
The remaining two both at 10% are Inquires / New Credit and Types of Credit. The Inquires / New credit basically looks at past inquires that were made when you applied for credit. The fewer amount of inquires you have, the better it is when applying for new credit.
Finally, the types of credit category inventories the type of financing you have received. For instance an instalment loan is more favorable than a financing company
By understanding what makes up a credit score, you can take control of your finances and secure your future!