How to calculate your credit score


Ever pondered “how your credit score is calculated”? Don’t wonder anymore. After providing you with precise information on how credit scores are calculated for most individuals, you will be able to obtain a ballpark idea of your credit score.

It’s crucial to understand how your scores are determined since credit scores have an impact on various areas of your financial life. In addition to being essential for borrowing and applying for loans, it may result in better terms for repayment, bigger credit limits, and reduced interest rates.

These are the factors that the top credit score provider, FICO, often takes into account:

  • Payment history (35%)
  • Amount owed (30%)
  • Length of credit history (15%)
  • New credit (10%)
  • Credit mix (10%)
  1. History of Payments (35%):

    This is the most important factor in your credit score. Your creditors want to know your payment history to know if you intend to repay them. Thus, your payment history typically accounts for 35% of your credit score. All of your consumer debt payments, including credit card, line of credit, auto loan, and other loan installments, are included in your credit bureau payment history. Your payment history on accounts, past due payments, and any adverse public records (bankruptcy, judgments, liens, etc.) or collection actions are all factors that are considered when analyzing your credit report. Additionally, the calculation will determine how recent any late payments or collection efforts are.
  2. Amount owed (30%)

    Excessive balances can lower your rating. Less than thirty percent of your available credit should be used, according to lenders. You might be able to see your usage percentage on the account page of your bank’s website. Borrowers who consistently spend up to or beyond their credit limit are deemed potential hazards by credit score systems. A substantial overall debt load from numerous sources will negatively impact your credit score.
  3. Length of credit history (15%)

    Your credit score takes into account the length of time you have had credit accounts. Longer is generally better. For someone who has not had credit for very long, it is difficult to discern if they actually know how to utilize credit responsibly. Time is needed to gain a true sense of how responsible someone is with credit. This is why the length of your credit history is the third most essential consideration in your credit score computation. It will usually make up 15% of your credit score. Your score will reflect how long it has been since you initially received credit, how long each item on your credit report has been reported, and whether or not you have active credit. Your credit score will be low if you have just recently opened a credit account. Nonetheless, this will truly benefit you if you have been using credit properly for a long time.
  4. New credit (10%):

    Applying for credit on a regular basis is a sign of financial strain, so each time you request credit, your score is somewhat worse. It’s a good idea to weigh the benefits of having additional credit against the potential harm to your credit score before applying for a new credit account.
  5. Credit mix (10%):

    A well-balanced credit mix is preferred by lenders since it demonstrates your ability to handle various credit kinds. Whenever feasible, it is best to include both installment credit (such as mortgages, vehicle loans, and student loans) and revolving credit (such as credit cards, retail store cards, gas station cards, and lines of credit).

Are you concerned about your credit? We can assist you if you’re feeling overwhelmed or have issues regarding maintaining, checking, or restoring your credit score. To assist you find the best way to get over your financial obstacles, one of our qualified credit counselors will be pleased to evaluate your financial status with you. It is always free, private, and obligation-free to speak with one of our licensed counselors.

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