How Credit Scoring Works
By Sameer Panjwani
all important credit score! It determines the amount of loan
you can get, it determines the interest rate at which you are
charged for a loan, etc. Your credit score plays an important
figure in your financial life. So what goes into making that
all important score of yours? How does it increase, how does
it decrease and what are the factors that go into its calculation?
Your credit score
is a number that reflects on the likelihood at which you will pay back
a loan. Scores range from 350 (high risk) to 950 (low risk). Credit
scores do not take into consideration your income, how much savings
you have or demographic factors such as gender, race or nationality.
Your credit score is affected by your current debt level, your past
delinquencies, your credit history and how many times your credit report
is pulled up by various agencies. Your score considers both positive
and negative information in your credit report. For instance, recorded
late payments will lower your credit score while a good track record
of making payments on time will raise your credit score. Timely payment
of your bills is important to ensure you maintain a good credit score.
The amount of balance you have left on your credit card, how many credit
card accounts you hold and your use of revolving credit also affect
your credit score to a great extent.
Your credit score
and credit report is formed on the basis of your credit history and
you need to have at least one account which has been open or updated
in the past six months to get a credit score. If you do not meet the
minimum criteria for getting a score, you may need to establish a credit
history prior to applying for a mortgage.
in all, if you can pay for all your debts in a timely and consistent
manner and not take more debt than you can handle, your credit
score shouldn’t be able to trouble you in life. So take
care and be wise with your finances.