Your credit score is a number based upon your credit report. As you grow in life you will find that it is one of the most important number affecting life and finances. The higher the credit score, the better it is. A higher score can help you find loans with low interest rates and quick turnaround times for approval.
The more you understand your credit score and the factors that affect your credit score the easier it will be for you to keep your financial health in order. The following 5 critical factors affect your credit score in a major way. By knowing these you can keep a check on them and make your credit score a healthy one.
1. Re-payment history
This factor carries the highest weight in your credit report. How steadfast are you in repaying your loans, makes your credit report shine. Experts claim that this factor alone accounts for 35% of points in your credit score. So, if you falter on repayment front it is sure to be reflected poorly on your credit score.
2. Outstanding debt
The next comes your debt burden. How much you owe is a factor that according to experts carries about 30% weight in your credit score. This is 30% is based upon outstanding debt. To get a better score it is advised that you keep your outstanding debt to a minimum.
3. Length of your established credit history
The time for which you have a credit history also matters. The longer your established credit history the more credit reporting agencies believe in you. This could be simply because of the fact that they have more data to analyze your financial position. Experts give it a 15% weight in determining your credit score.
4. The state of your financial accounts How much money do you have in your bank account, your income levels, your house, car, your assets etc. comes the next. A healthy bank account reflects a healthy credit score. Experts find that credit reporting agencies give this factor 10% weight while determining your credit score.
5. Different credit types you haveWhether you have taken a secured loan, unsecured loan or applied for a debt consolidation matters. The loan or credit types also reflects on your credit score. Credit rating agencies give it a 10 % weight to determine your credit score.
Calculation of credit scores is quite confusing and very complex. Exact method of calculation is seldom explained by credit reporting agencies. The 5 critical factors mentioned above, give you the nearest estimate and will help in keeping your credit reports in a good shape.
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