The Determination of Credit Score

In order for anyone to either repair the bad credit score or even arrest the deterioration of their credit score they have to first understand how the common FICO credit score system is weighed up in order to obtain their credit score. Below we are going to list the different factors that are used to measure the credit score of an individual and thus their creditworthiness.

The first factor that they look for is your payment history. Of all the rest of the factors this one has the highest weightage in calculating the final credit score. All account payment information is looked at including any type of account. This can include mortgage companies, union finance institutions, finance companies, retail or government billing, basically anything that you can owe money on that has reported to the credit bureaus will be looked at. Of all the different account, adverse records will be extracted. These would include collection items, delinquencies, suits, liens etc. All the delinquencies will then be weighed in see how severe the infraction is. The recency of the overdue items, the number of overdue items and the number of account that have been settled are the looked at last.

The next most weighted item that the credit bureaus use to determine the credit score of individuals is the amounts that are owed. A list of all the account and types of accounts are first listed. From each account the amount due is recorded together with a percentage factor for weightage, certain types of accounts are weighed more while others are weighed less. The number of credit lines and the length and number of loan installments are also taken into consideration.

The length of an individuals credit history is then looked at, it has the third most important weightage of all the factors. Of specific interest is not necessarily the length of time that your credit history has been available but specifically the length of time all your account have been open and active. Each of your accounts are listed together with their types and also factored in with the length of which the account is open. Each account must have a certain level of activity in them in order for them to be considered valid.

The 4th most weighted factor is the number of new credit products that you have opened recently. Again, each account type is determined and is weighted against its type factor for a numerical representation. The time since you created you last credit based account is also taken into consideration. The number of times and the recency of your credit report being pulled is also taken into consideration. They will also look at the time you take to improve your credit history based on your year-to-year performance.

It should be noted that what is mentioned above are the main factors used to calculate an individual’s credit score. It is by no means exhaustive as there are many more factors that are taken into consideration in the final calculation. It should also be noted that banks and lending institutions will also look at the credit score as only one of the many factors that will determine if you will get a loan or not. The banks or lending institutions will look at other factors like your employment history, where you live or even what car your drive etc. Overall, if you are looking to either improve your credit score or at least keep it at a good state then you must be sure to keep all your accounts current and try your very best to keep your finances within your income scale.