Credit – Increase your Score. The Foundation
August 10th, 2010
The credit score depending on the source it is obtained from, is calculated taking a few factors into consideration, some more than others. In order to understand the concept of the credit ranking fully and to increase your credit score, you need to first of all understand where this number is mainly derived from.
Most of an individuals’ credit score is calculated mostly from four major factors 1.) The Credit History 2.) Current Debts 3.)Types of credit you have 4.) How long you have had credit. These factors and their contribution to the overall would be discussed in due course. Figures given vary in real life depending on where the credit score is obtained from.
First of all, we talk about the Credit History. The Credit History is a major factor accounting for more than a third of your credit score at times. It is simply a compilation of your financial past and works on the principle that if you have been a good credit risk in the past, you are more likely to continue that way in future. Considering this, loan defaults, bankruptcies, unpaid taxes and other unsettled debts would give a negative perception of you and reduce your score drastically.
Next in line is Your current debt which in some cases accounts for a third of your credit score. A large debt balance is an indication that you might have trouble repaying extra debts in the future. Accumulating a lot of debt would definitely be extremely damaging to your credit score.
Third, we would talk about the type of credit you have which is responsible for about a tenth of your credit score. Lenders would prefer to see a variety of debt types which are settled satisfactorily. For instance, if you have a credit card, bills and two or three loans that you settle as and when due, it can actually improve your credit score.
Finally, the length of time you’ve had credit is another important factor in computing your credit score. This factor accounts for, in some cases, around 15% of the credit score. If you haven’t held credit accounts for long, lenders may not have enough information to know if you would be a good credit risk. Not holding credit for a long enough time might be a negative factor in your credit rating and work against your quest to increase your credit score.
Now knowing about the above, it should be easier for you to understand what might actuallly be responsible for your low credit score so you can take steps accorgingly to improve the credit score.