Understanding and Calculating the Credit Score

We often say that age is just a number and doesn’t matter unless you are active and doing well. The same isn’t true for everything. Certainly not for credit scores!
We hope you have heard about them and the impacts it has. Well, for those who don’t know much about it, here we are to explain you about credit scores and calculating it.
Basically, what is a credit score?
Credit scores are the numbers that most lenders refer to while giving a loan. They decide how are you going to pay the loans and tells about how clean is your past loan record. A good and decent credit score is essential to help you in any financial transactions. For further information please visit this site.

There are basically 2 types of credit scores available:

  • Generic credit scores
  • Custom credit scores


The generic type of credit score is commonly used by all the lenders and businessman to check your credit history and risk associated. You have the access to the scores across all the credit reporting agencies. A custom type of credit scores is developed by single lenders, who rely on previous credit history and the lender's portfolio along with other information of the candidate. This type of credit score is applicable to loans like mortgage loans, auto loans or lending etc.

There are few factors that you need to know to improve or take care of your credit history. Read on:

  • Total outstanding debt
  • Account type that you transact on
  • Late payments made in total
  • The age of the existing in use accounts

These elements form the base and mainly shape your credit scores. Now we know how important is a credit score and the importance to keep it good, for all financial lending’s and help when you really need. Do you know how your credit score is calculated? You score will be a 3 digit number, ranging between 300-850. The higher the number, better are your chances. Here we elaborate on what goes in calculating the credit score, have a look.

Top factor affecting your score

Payment History:

This is the factor that has the highest weighting among others, 35%. This says about your payment style, whether you pay on time, in time or always delayed. This shows how many times you have delayed payments, how many times you totally missed making the payment and how recently you were clean or missed payments.
Your score is directly proportional to the payments made, so the more number of times you miss less is your score. The times you pay before the due date and on time, your numbers rise.

Current credit loan and general loan under your name:
This is the next top factor affecting your score. This takes 30% of the credit score. It says the outstanding balance amount, a total loan that you owe to the banks or other agencies. The type and number of accounts that you own, the total balance on credit card, the loan or debt that you have on the card directly impact the score. The more the credit debt, less is your score. The lesser the debt will eventually increase your score.
Though you might have higher credit debt, if you still make payment on time, your score will be better than otherwise.

Credit history length:
Reading all these statements might make you feel to avoid any credit debts to hold, rather live debt free. But, in case you need one, your credit score is a must, and without any reviews either good or bad, no lender can review your process. Hence maintaining a good and clean credit history is a mandate. This accounts for close to 15% of your credit score, meaning longer the history with timely made payments higher will your score be.
Account types:
This makes up 10% of the credit score. Having only a single type of account wouldn’t help much, but holding a mix of accounts will be a wiser option for you.
Recent history:
Your pretty recent credit history makes the last 10%. In case you have too many accounts and have too many debts, yet have made prompt timely payments, no doubt your score will be higher.
But on the other hand, in case you have just processed for opening up of accounts, and already have debts on the newly opened account, then you are in trouble, with a lesser score.
The conclusion is that you need to wise in making decisions, use up the facilities wisely and be prompt to stay safe and financially healthy.

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Frederick Thompson


John Smith