Credit score - how it is calculated?

Your score is a number that ranges from 300-850. It is calculated using your credit history and the information on your credit report. Your score is something that creditors and banks look for to determine if you are worthy for a loan or not. Same thing goes for your report, creditors also check it but your credit score is like the summary of everything and it’s easier to look at.

There are several different versions of credit scores. The most common version is the FICO score (Fair Isaac Company), wherein the score is used by creditors to determine your worthiness. And because of your paying history is more important than others, some are given different weights in calculating your score. And even if the formula for coming up with your credit score is owned by FICO, we’ll give you details on what information is used for computing your score.

To give you an idea on how it is computed, we have here a chart with the information that is included in your report along with the percentage

Debts - 30%
Payment history - 35%
Credit history length - 15%
Inquiries - 10%
Other accounts - 10%

1. Debt level- Your debt, in comparison to your credit’s limit is also known as credit utilization. If it’s high, it means that you’re close to your limit, and that’s going to hurt your credit score. That is why it’s best to stay 25-30% below you credit limit.

2. Payment history- This is what banks or lenders are most interested about. They want to know if you pay your bills on time and regularly. Collections, late payments or bankruptcies will have an effect on your credit history and credit score. New delinquencies hurt your score more than the old ones.

3. Credit history length- The longer your history is, the better. It will give more information about you and your paying or spending habits. Also, you’ll get more points if you leave the accounts that you’ve had for a long time open.

4. Inquiries- whenever you inquire about your credit, it will leave a record on your credit history. There are two kinds of inquires, voluntary and involuntary. Voluntary is when you request to see your report and involuntary is when banks or creditors pull out your record to do a background check on you.

5. Other accounts- Whenever you open a new account, it will automatically be registered on your credit report. It will also show a list of your activities in the past.