How Credit Score is Determined

The financial institutions or credit companies with the help of credit score determine whether or not the consumers are eligible for all kinds of loan such as credit card, home loan, etc. The lenders before granting any kind of debt to the consumers go through their credit score. A large percentage of consumers find it hard to adjust their credit scores because they do not know how the credit score numbers are determined. The customers must know whats a good credit score so that they do not have any kind of problem in obtaining debt from the lenders. The whole credit information and various other factors are taken into consideration for determining the credit score of the consumers. A credit score can have a considerable amount of impact on the life of the consumers; hence the consumers must maintain a highest possible credit score.

The Fair Isaac Credit Score (FICO) is largely used all over the world to calculate the credit score. It is a creation of Fair, Isaac and Corporation. There are also three kinds of major credit score companies that maintain the credit score by using the FICO standard.


Elements of FICO Score
Some of the elements of FICO score are outlined below that are used for determining the credit score of the consumers:



History of Payment
The history of payment of the consumers accounts for 35 % of the credit score. The financial institutions before lending you the loan are very interested in knowing the past performance of the consumers for paying off the loans. Any type of previous loan and the consumer's ability to pay off the loan form an integral part of this section. The credit score of the consumer's increases by a large per cent if they pay off their loan on time.

Current Debt Owned
According to FICO 30 % of current debt owned by the consumers make up their credit score. The financials institutions are very much anxious to know the amount of money you owe. Possessing too much amount of loan can hurt your credit score. The consumers must control their amount of debt in a very intelligent manner. The less credit used by the consumers out of their total debt, better will be your chances of increasing credit score.

Length of Credit History
The length of credit history of the consumers accounts for 15 % of the total credit score. The financial institutions provide debt to those consumers those who have shown a very excellent pattern of borrowing and repaying loans. The various other constituents that form a part of length of credit history are number of accounts the consumers opened, the duration for which the accounts have been opened and the number of times the accounts have been utilized by the consumers.

New Credit
The amount of new credit taken by the consumers makes up 10 % of the total credit score. The financial institutions before providing debt find the information, if the consumers have applied for any other new credit or loan recently. A large number of new credit applications at one time may result in the poor credit score.

Types of Overall Credit
According to FICO 10 % of types of overall credit used by the consumers make up their credit score. A blend of credit cards, debit cards, retail cards and various other loans shows the spending pattern of the consumers. However, it is very much important that the credit report of the consumers must contain the information about a limited number of cards. This will increase their chances of obtaining a maximum credit score.