Five sample factors for calculating credit scores
are listed below, along with a sample of the importance each factor
has to the total score. As you read through the list, think about
how your credit might score today.
Payment History: 35%. What is your track record?
Have your payments been made on time?
Outstanding Debt: 30%. How much do you owe? Do
you have a high level of debt? Are you near the limit on your accounts?
Credit History: 15%. What is the length of your
credit history? Has it only been a few years?
Pursuit of New Credit: 10%. Have you made numerous
applications for new credit? Are you taking on more debt?
Types of Credit in Use: 10%. Do you use a variety
of credit types? The score will consider your mix of credit cards,
retail accounts, installment loans, finance company accounts and
mortgage loans.
Calculating Your Score
So how does all this math work? Each factor is
given a weight or level of importance. This weight is assigned as
a percentage (such as 35%, as shown in the example above). The score
is graded for each factor, and then each factor is multiplied by
the weight. Computers calculate credit scores in an instant.
What If I Can't Get My Score?
Consumers have a right to know the specific reasons
why an application for credit is rejected. There are no laws requiring
lenders to reveal your credit score to
you, but this is expected to change. Laws will be updated to reflect
the influence and convenience of computers on consumer credit and
spending patterns. But until then, it never hurts to ask. Some lenders
will gladly share your score. Be sure to ask lots of questions and
understand what the score means.
Understanding
credit scoring
