• FICO: 300-850
• Vantage: 501-990
There are several different types of the credit score (FICO, Vantage, and FAKO etc.); from those versions of credit score most commonly and widely used version is the FICO score. This Developed by the Fair Isaac Company, Many Banks, lenders, other creditors used FICO score as the reference to decide whether give credit or not to extend credit you.
Credit score mainly depend on your financial history, and credit reporting agencies used weighted parameters to calculate credit score. So what is weighted parameters? Different parts of your credit (financial) history are given different weights and weighted values use to calculate your credit score.
1. Payment history : 35% (longer the better)
2. Amounts of money owed : 30% (lower the better)
3. Length of credit history : 15% (longer the better)
4. Types of credit used : 10% (Mix of credit cards & instalment loans)
5. New credit : 10% (new accounts and inquiries)
Payment history
Highest weighted element among the parameters used to calculate credit score Most of the lenders like to predict future ,so your Payment history is the most concerned value of lenders. They just need to know that whether you have ability to pay the bills or not. Payment history includes late payments, bankruptcies and collection etc. These all facts will concern to the credit score.
More recent delinquencies can hurt your credit score than delinquencies in the past.
Amounts of money owed
Amounts of money owed also called as Debt to credit ratio or Debt level. Lower this parameter will increase your credit score. Simply indicates how much you owe on accounts and types of accounts with balances. In here the new term will come up to the stage that is “credit utilization”. Credit utilization is the debt amount compared to your credit limit. Always keep your credit card balances at about 30% of your credit limit or less. If you above the 30% of credit limit your credit score will fall. Keep debt credit ratio as low as possible. It will affect 30% of your credit score calculation.
Length of credit history
This is the 3rd fact and longer credit history will gives you good credit score. The longer you have (good) history, the better your scores. It is like this, longer history can shows more information about your financial activities. Lender likes to view
• How long you've been using credit lines
• When you opened an account
• What type of account you opened
• How long it's been since you had any activity on the accounts
Types of credit used
This is the 4th factor and it worth 10% of your credit score calculation. Simply indicates how many different types of credits you used in present and past (Ex: credit cards, mortgage, car loan, student loans etc.). Tip is having different kind of credit shows that you have experience of managing a mix of credit and also generates better scores that reports with only revolving accounts (Credit cards).
New credit
New credit factor also called this as number of new credit inquiries. Number of accounts recently opened and the ratio of new accounts to total accounts. In each time you make a new application for credit that inquiry will add to your credit report. Too many applications in certain duration show that you taking lot of debt on certain time and it show your financial instability. Any new inquiry remains 2 years in the credit report and only consider inquires made within past year. Tip is don’t open several new credits in short period of time.
Those factors in the credit report are only considering the credit score calculating software to calculate credit score. But in the real scenario most of the lenders look at other elements that are not included in the credit report such as income, employment, type of credit seeking etc.
With credit expertise experience, to have very best credit score a person need 3-4 credit card accounts with debt balance below 30% of credit limit. And also 2 vehicles, computers, furniture or personal accounts with all good long payment history. Don’t get credit score FAKO it is useless (FICO is good). Lenders and Creditor make quick credit/no-credit decision using credit score so keep good credit score is an essential task for individual.
