How Your Credit Score is Calculated
It may seem like the calculation of your credit score is a very complicated process. It can be but with a little bit of explanation you can begin to grasp the concept.
Determining Factors
Your creditworthiness is determined as a variety of factors are considered. Your overall FICO credit score which usually is a number between 300 and 850 is a huge determinant.
In fact, some creditors rely on this alone to determine if you qualify for a postpaid mobile phone plan for instance. If not then you may have to pay a substantial contract to be eligible for a cell phone service contract.
The total breakdown of items that count towards or against your overall creditworthiness include this list:
- Payment history-35%
- Debt to income/assets ratio-30%
- Length of credit history-10%
- Types of credit-10%
- Number of inquiries-10%
Score Interpretation
The mot common credit score calculation scale used today (or the one most often recognized) is the FICO scoring system. This number scale used usually is between 300 and 850.
Of course, the higher the number the better your rating is. The lower the number the worse off you are as far as your credit rating is concerned.
Concerns
Of course, sometimes good things happen to bad people and it often is not fair. Unauthorized purchases and stolen credit identity are huge problems especially nowadays.
There are ways to reverse crimes committed by unscrupulous credit thieves. However, it may take some time and effort. You can request to have certain negative items removed from your credit report.
Here is an interested statistic: About 80 to 90% of all credit reports have serious errors on them. Some people do not even know it and wonder why they are being denied credit. This could be you so it would be to your advantage to seek a free copy of your credit report.
International Scoring Systems
The United States is not the only place that uses the FICO system. It is heard of in other parts of the world such as in Canada. This country also currently uses two of the three major U.S. credit bureaus-Equifax and TransUnion.
Australia uses similar principles as U.S. and Canada. However, they have a slightly different system by which they calculate credit score. This country is huge on using credit scoring to determine unsecured debt credit limits as well as overall creditworthiness.
Eastern countries such as India have its own system as well. In the year 2000 the Credit Information Bureau (India) Limited was formed. Sweden and other countries also have their own systems of determining creditworthiness.