Your current credit condition can be represented by a numeric term, called as a credit score. The importance of credit score is huge in credit transactions. It represents the current status of your financial relationships. In a single, it is the representation of your credit repaying capability. Credit score determination is also considered as an important action to maintain and rebuild your credit history. Even you can apply for a business funding by resolving your past credit problems. However, this factor can be determined without much effort.
The importance and necessities
1. It is helpful in managing your personal finance
2. It is helpful in repairing your old credit problems
3. It determines whether you are an identity theft victim or not
4. It helps you in rectifying any inaccurate information related to your credit
5. It helps you in drawing fresh and more beneficial credit lines
6. It helps you in building a healthy credit history
How do I calculate my credit score?
We all know credit score is commonly referred to as a FICO score, but maybe all of us not familiar with the reason behind it. Well, the score calculation tool is designed and developed by Fair Isaac Corporation. The concerned tool is equally beneficial for the lenders as it helps them in the determination of risk percentage, before availing a loan. For calculating your credit score, you need to break your FICO score calculation into five major factors, as per their importance level. However, the calculation also involves five additional factors.
Basic fundamentals of credit score determination:
1. Type of credit used – 10%
2. New credits – 10%
3. Total length of credit history – 15%
4. Amount owed – 30%
5. Payment history – 35%
Additional fundamentals of credit score determination:
1. The preceding obligations on various account types
2. The numbers of problems involved in your payment history
3. The numbers of problems appeared in your payment history
4. The actual size of the problems in your payment history
5. The line of delinquency
Some factors that should not be included in the credit score calculation:
In this framework, you are also ought to know about the factors that should not be included in your calculation. The list of a factor, defined by FICO, is given here.
4. Marital status
6. Monthly earning
7. Employment history
8. Date of employment
9. Residing location
It takes a lengthy period, even a year, to determine the score. A better score can only be determined by a lender or a loan aspirant if it considers all the above-mentioned factors. The amount owed category involves two things: present financial condition and the current amount of debt. You should not forget that the debts from many sources are likely to reduce your credit score. Debt from a single source is preferable in this regard. Obviously, a good credit history is preferable to getting a cut more than 10. You will be few steps ahead of your nearest competitors if you are with a 10 plus credit score.