How Credit Is Scored

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



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