Do we know what Credit score actually means?
It is basically a numerical and statistical analysis done on a person’s credit report to value the creditworthiness of that person.
Fair Isaac Corporation (FICO) was the first company to develop software from which the most credit bureau scores are used in US today. These scores are provided to the lenders by the credit reporting agencies as data which gets used to provide the best guide for future risk. It normally says that the higher the credit score, the lower the risk, but at the end the lenders take the total decision as they use their own strategies and consider different levels of risk and factors to determine the actual rate of interest for a particular product.
Below is a diagrammatic explanation given on FICO break outs and ratings for Credit Score. This is a famous model used to decide creditworthiness of a person.
Coming up next some depending factors for Credit Score Rating:-
1) Payment history – about 35% of a FICO score – Avoid late payment and bankruptcies as its most important factor to keep a good record.
2) Outstanding debt– about 30% of a FICO score – It depends on how much you owe on all your accounts. The more you owe compared to your credit limit, the lower your score will be.
3) Length of your credit history – about 15% of a FICO score – It is the period of time one continue with credit. The longer had established credit, the better it is for your overall credit score.
4) New credit – about 10% of a FICO score – Opening new credit accounts will definitely rate negative score for short time.
5) Other factors – about 10% of a FICO score – Having a mix of credit types on your score report can add on positive points slightly.
So by now I am sure you have had enough idea on what credit score is, how it works and its depending factors. Not necessarily that the score which is given to you depending upon all above factors are always correct. So if you see errors in your credit score report, immediately use these helpline numbers to report it to the credit bureau.
The three major bureaus in U.S.
Trans Union (1-800-916-8800) and
Experian (1-888-397-3742) .
All have procedures for correcting information promptly.