Your credit history, usually shown in your credit score, is very important especially if you are looking for credit facilities. The credit report is given by a Credit Bureau, and is usually used to see if it is safe for a lender to advance you credit facilities. It is important that you understand how this credit score is calculated, so you can scrutinize the credit report from an informed point of view. This is the formula that is used in calculating your credit score, a key component when you are looking to apply for a short term or payday loan, to help get you get the best terms and lowest apr offers.
The credit score is calculated from the entries in your credit report. About 35% of the credit score is determined by your past payment activities. Each account that you have is treated as a different entity. If you make any late payments, then this will reduce your credit score. For example, if you stay for 120 days without paying a debt, then you credit score will be heavily affected. The next 30% is calculated from the ratio of your debts to credit. This is a factor called utilization. Although any installment accounts that you have will affect your credit score, it is the revolving accounts that determine the bulk of the 30% mentioned above. If your credit balance is closer to the credit limit of the accounts, then this will lower your credit score.
The length of you credit is another factor, which makes up for another 15% of the credit score. This will be calculated depending on the average age of the accounts that you have. If you open a new account, the credit score will be lowered, and it is therefore not a good idea to open new accounts when you are seeking a credit report. The type of credit that is available to you will make up for 10% of the credit score. This means that if you do not have credit cards, then the score will be lowered. Finally, another 10% will be determined by the credit inquiries that you make. This are calculated based on every 2 years. It is therefore advisable that you make fewer inquiries into your credit score.
When the credit score is being calculated, the first entries that you make are those of account age. You will have to add the dates of all your accounts. This will give you the age of your credit history. The next entry is the types of accounts that you have. This will include any revolving or installments accounts that you have. You will also need to input any charges or collections to your account. Any bankruptcies, delinquencies, and other credit issues will be taken into consideration.
The credit score calculator will also need specifics about the credit limits and balances of your credit cards. This way, the calculator will get the credit utilization. All balances of installment loans will be required for an accurate score. Finally your payment history will be calculated, and you will need to say which accounts are late, and for how long. Once the information has been analyzed, the credit score calculator will show you what your expected score is.