How a Credit Score is Built-Up

Good Credit Score What Does It Get You?

A Credit Score is a game of Numbers; but this game involves High stakes. Your credit score can mean the difference between getting the loan you require and being flatly refused.

For lenders, your credit score gives an indication of the likelihood or your willingness to fully settle loan granted to you on the due dates. A credit score scale is from 350 to 850; and the higher the score, higher is the probability of settlement, and for the lender, his risk is lower.

Lenders feel free of risk when lending to those with a credit score of 700 or higher. They might even lend to those from 600 upwards though at a higher rate of interest or with more collateral to cover their additional risks involved.

What Factors Affect Your Credit Score?

Some people are not fully aware what factors and to what extents they contribute to lowering or raising a credit score. Here are the items and the ratios that go to build up your final overall credit score. Thirty five percent out of the total points are given for your credit history. Points are deducted for payments delayed over 30 days usually allowed; and bankruptcies (very rare), with more points being deducted for more recent delays.

You can get another thirty percent of total points depending on how well you manage your loans. What is considered in this section is the ratio of your present total debt to the total available to you (approved limits). This is more relevant to revolving credit like credit cards. Lesser the ratio, more points you get; and higher the ratio, lesser points you get. That is why they say not to utilize more than 25 to 30% of your credit card approved limits.

You get a further fifteen percent of total points for the age of your credit. Obviously you would get more points a longer credit history. Taking the age of the longest loan account and then taking the average of all the other loans accounts and then taking the mean average of the two is how they measure the Credit length. If you were to cancel a long-standing credit card account, it would be a disadvantage to you for your credit score under this section.

Another ten percent is being given depending on the number of occasions you had inquired from prospective lenders; and any new loans obtained during the recent past. You lose points according to the total inquiries received, since some inquiries are indicative of a tendency to borrow as much as possible from whatever sources even above your means of settling same. You will get plus points for any new loans you have succeeded in obtaining during the recent past

The last ten points is given according to the mix of the loan balances you are carrying at present inclusive of mortgage loans and other secured debts, non secured debts, revolving credit etc., although what the ideal mix comprises of is not clear.

Although a clear line cannot de drawn separating the failures from the successors in the case of credit scores, the 700 mark or above as achieved by sixty percent Americans has now come to be accepted as the standard for consideration of credit under normal terms by lending institutions.

Even if you have not come close to that mark, there is always room for improvement with time. Try to establish what is dragging you down from the information we have made available to you and work towards eliminating the bad practices such as reducing your debts and cultivating some good practices like paying your debts on time.

In the worst situation, you can negotiate with a lender to grant you a loan outside the normal procedure so that it won’t get into the official records or affect your credit score.

The next time you receive your credit report, you are sure to understand a lot more of it than you did the previous time and you would also not only note under what sections you have done badly, but also as to why and also as to how to improve your next score under that section.

Since your credit score undergoes annual changes, make sure you get your credit reports every year.