The credit score is calculated by the credit bureaus or the banks, lending institutions that operate in your country. The credit score is calculated after considering a number of components have their given weight on the credit score of the person. Every component has its own particular effect on the credit score. Your payments account for the highest weight on the credit score.
The fees account for almost 35% of the credit score calculation. Therefore, the debts collection and charge-offs have an enormous impact on your credit and need to be managed properly, on time. They go down as late payments and your credit score suffer from it. First, you should analyze the debt collections and charge-offs along with the payments, on your credit report. If there is any false account or the account is not accurate, you have the right to dispute the error with the credit bureau. If your request is approved and the account is adjusted correctly, you will see a positive change in your credit score.
Moreover, you should clear all the charge off and collections on time. Otherwise, they will affect your credit score for a longer period of time. Also, make sure that you pay your dues on time to improve your credit score.
What is a credit score
A credit score is needed for you to be able to get a loan or credit. The reason behind this is because it will help financial institutions to determine your creditworthiness. They will also see every loan that you made and the payment history that you have. Find out more about it by reading the information below.
Credit scores are calculated based on the proprietary algorithm. This will include the person's outstanding debts, payment history, and the length of the individual's credit history.
Credit scores can range from 300 to 850. The higher the individual's score, the lower the risk. People who have lower credit scores are considered high risk, which will make lending companies ask for more requirements.
About Fico scores
Fair Isaac Corporation is the one who established FICO, and it is one of the most commonly used credit scoring systems today.
According to FICO, 90% of the most reputable and respected lenders today are making decisions according to this kind of credit scoring system. Get to know more about Fico scores by reading the information below.
How are credit scores calculated?
The weight of each of the five categories are; 30% of amount owned, 10% is for the new credit, 15% accounts for the length of credit history, 10% is the credit mix and the last 35% accounts for the person's payment history.
The FICO score takes into consideration positive as well as negative aspects of the credit report. The percentage or the weight of any of the categories mentioned above may differ from a person to another depending upon the information available in the credit report.
The FICO score takes all of the information from your credit report. However, the banks or any other lending institution might look at your income, type of credit and employment history when you apply for a loan or mortgage.
Once a certain lender asks for a client's credit report, they can also ask for the Fico score. Other sources say that your Fico score will include 35% of your payment history, 30% of your credit utilization, and 15% as to how long have you been borrowing.
Explanation of credit score ranges
It is important to know the category that you fall into when it comes to credit score for you to be aware. The range of a credit score can go from 300 to 850. Always remember that the higher your score, the higher the chances of you to qualify for a loan. There will also be instances where a financing company is okay with 650 scores, while the other is fine with a 750 score. It will all depend on the lender itself.
A lender or a bank will check your credit score if you qualify for the application that you are requesting. Here are some of the credit score ranges that you should know.
Bad credit score
People with a credit score below 579 is known as high risks. Foreclosures, poor payment history, and bankruptcies are the reasons why people fall into this category.
Good credit score
A good credit score ranges from 680 to 719. People with this credit score can expect approvals and interest rates that are better.
A very good credit score ranges from 720 to 799. People with this credit score is known to be small risks, and they often get loan amounts that are higher than usual.
An excellent score ranges from 800 and above. Financial freedom is expected to people with this score.
Other things you can do to improve your credit score
The credit score ranges from 300 (the lowest credit score possible) to as high as 850 (the highest credit score possible). Higher you credit score, greater are your chances of getting your loan or credit request accepted quickly.
However, if you are facing issues with your low credit score, following are some of the tips or techniques that you can use to improve your credit score:
You should start by minimizing your total debt. The increase in your total debt value is going to affect your credit score negatively.
You should also be very careful with your bills and other credit payments. If you pay them on time, this will gradually improve your credit score.Have a closer look at your credit balances. You do not want to cross the credit limits because they deteriorate your credit score.