Friday, 19 July 2013

Checklist to Sum up Your 100% Good Credit Score

Hey, thinking to apply for a loan to buy a new car, nope! Well, then you might be planning for a new house. Whatever you plan to buy or fetch look at your financial status.

First thing, that must strike your mind – “Do I have a good credit score?” If not then it is time to build a good credit score.

Scratching you head!! Well, I think you are not aware of the term good credit score. Then let me define it for you.

What is a good credit score?

A good credit score is a numeric expression that helps lenders to estimate risk of extending credit gives out loan amount to people. Most common credit score is FICO score, and for this one usually have a measurement based on five factors that is sure to effect credit score.

35% accounts from payment history

A recorded history of on time payments always comes handy to improve credit score. What does payment history generally contain? They include various types of information like credit card balance, retail accounts and installment loans outstanding balance, even adverse public records for liens, foreclosures and even bankruptcies.

Time gap between last negative event and frequency of missed payments is sure to affect the credit score. As for example, take a person who might have missed his credit card payment three years ago, will be seen less riskier than person who misses several payment every year.

Credit scoring and FICO score

Many agencies uses data that they have collected to formulate a credit score for you. This is a value that can be used later to determine your creditworthiness.

Some factors used to calculate your score are - 

Amount you owe on non-mortgage accounts

Credit card outstanding balance

Payment history

Number of credit lines that are open

Age of credit file

Number of recent report inquiries 

Credit history


FICO score is the most widely used by lenders for checking the credit history. All three credit-reporting agencies have their own names for FICO score like, Equifax calls it BEACON, Experian calls it Experian/Fair Isaac Risk Model, and TransUnion calls it FICO Risk Score. Despite having different names, scoring method is consistent across all three.

How are FICO score determined?

30% accounts for how much you use your credit and how much you owe

FICO score taken into consideration to show how much you owe or how many accounts have balances and the amount of credit used. More a person is going to owe relative to their credit limit, credit scores will lower accordingly. You will be already going to see yourself in risk, if you are already max out your lines of credit.

15% is contributed to length of your credit history

In FICO score, age not taken into consideration.  Fact is that, longer the credit history more it will improve your credit score. Well this is a disadvantage on the part of young people, a young person is going to have a lower credit score than an old person, but all the factors will remain the same. 

However, a person with short credit history will be still getting a high credit score if he or she is able to exhibit dependable credit management.

Just 10% incorporates in new lines of credit

Recent or frequent applications of new credit have a negative impact on credit score. Every time when the lenders check your credit history, your score drops by a few points.

For credit rating agencies, they consider number of recently opened accounts and often compared to percentage of new accounts relative to total number of accounts. They intake the number of credit inquiries, but excludes consumer and promotional inquires.

In addition to that, they make inquiries on how long accounts have been kept open or number of credit inquiries made. FICO also suggests that staying focused while shopping for loans like automobiles and mortgages, you have to search under a period of 30 days, and that can help one to avoid credit score deductions.

Other factors account about 10%

Individual is having a variety of credit types even you may have it. If you have just one type of credit say for example a credit card, your score will be lower than an individual having variety of credits will.

Author Bio : Moumita Dasgupta, a financial blogger and the owner of bizandfiz, shares her knowledge and expertise of various financial topics. A clear view on market, business, Forex, funds, personal finances etc. are the subjects she perfectly underlines through her articles.


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