Credit Scoring

The 5 Credit Rating Scores Factors

There are 5 different factors that determine your credit rating scores. Your payment history is the first factor and counts for the largest percentage of 35. This will not be news to you, but this is the reason it's so important to pay your bills on time. This is where a large portion of rating your credit score comes from. When you are late constantly you are obviously scored bad. And if you are so late that you have been referred to a collection agency it is even worse, and declaring bankruptcy is the worst you can do.

The second factor that is taken into consideration while rating your score is the exact amount of money you that you owe. They will also look at the amount of credit that is currently available to you. The way they will determine this is by adding up all of your outstanding loans, such as your car loans, your mortgages, and even your school loans and then they will compare that number to your annual salary. They will then proceed to add up the amount of credit available to you, and compare this amount to how much credit that you are currently using. When you use all of your available credit, like maxing out your credit cards, it will make your rate lower. This is all worth 30%.

The third factor counts as 15%, and this is the amount of time you have had your credit for, meaning the length of your credit history. Of course, the longer you have had credit, the higher your score will be for this part of the determining factors. They will also check if you have the long-standing credit with one creditor, and if you do this will increase your score. you'll do even better on this aspect of the scoring process.

The fourth factor will be 10% of the final score, and this is the type of credit that you have. They will look if you have secured loans, car loans or unsecured credit loans, which are considered high risk loans. What they are looking for is if you have a mixture of different types of loans, if you do you will score higher.

The final factor is worth 10% of you final score. This is how many applications for credit you have applied for. If you have a lot of inquiries this will hurt your score because it sends up a red flag that something may be wrong.

Lenders will usually look at your employment, your income, the length of time at your current residence, and even your marital status, your credit score will not be affected by this.

You should always get a copy of your credit report at least 6 months prior to trying to obtain a loan, especially a large loan. You want to look over your history and ensure that everything on it is accurate. If you find inaccurate information then you need the time to correct it, by contacting the Credit Reporting Agency. This takes time because you need to contact them in writing.