How is My Credit Score Calculated?

How is my Credit Score
calculated?

 

Credit scores
are becoming increasingly important, with many employers even factoring this
into their hiring decisions.  A credit score is based on a credit
report, which is a detailed account of one’s credit history, borrowings,
repayments, and credit inquiries.  It indicates the financial
responsibility of an individual, including on-time monthly payments, types of
credit accrued, and complete credit history.  

 

                   

 

The three
prominent credit bureaus which maintain credit records are TransUnion, Equifax
and Experian. Any non-payment is immediately reported to these bureaus and
reflected in one’s credit report. A credit score is calculated by a special type
of software from Fair Issac Corporation Company, from which the FICO score name
stems.

There are
several different components, with individual weightings, that comprise your
credit score:

 

Payment
History - This accounts for 35% of a
credit score and indicates timely payment of monthly bills or
otherwise.

 

Extent of
Indebtedness - How much an individual
owes constitutes as high as 30% of the total credit score.  Thus,
it is important to keep your borrowings low, preferably below 40% of maximum
credit limits.

 

Length of
Credit History - How long a person has
maintained credit carries a weighting of 15%. The longer the credit history, the
better this reflects on your score.

 

Types of
Credit - The composition and different
types of credit that a person has comprise 10% of the credit
score.

 

New Credit
- The size of new credit and inquiries
has a weighting of the remaining 10% on the credit
score.

 

A credit score
varies between 350 and 850. While a score of 850 indicates excellent credit, 350
very poorly on the individual’s financial responsibility.  To
improve a score, should reduce credit card debt, pay bills in time, and be
careful in the types of credit you utilize.