How Is a Credit Score Calculated? Factors Included in Your Credit Score Calculation.

A cricket score is three digit number that is a measure of the risk and the creditworthiness of an individual. A credit score is calculated by evaluating the information present on the credit report of consumer. There are various credit scoring models available in the market today. One of the most popular credit scoring models is the FICO score with other models such as the VantageScore being just as much in use. Whenever you make an application for a new loan the lender evaluates your credit score in order to ascertain the risk involved in lending you the money. A cricket score provides the lender with a quick and fast reference to make a yes or no lending decision. While the same decision can be reached by evaluating the credit report in full, the credit score serves the purpose of reflecting the information present in the credit report in an extremely summarised and accurate form.

Although the different credit scoring models use different algorithms and calculation to calculate the credit score the information that is used to calculate the credit score is as follows. A credit score is made up of different elements present in a credit report where different weightage and importance is allotted different kinds of information present. The following is the proximate breakup of the percentage influence that different information has in the calculation of the credit score.

Payment history Gets 35% weightage in the credit score calculation

One of the best indicators of whether or not he will continue to pay your bills in the future is the payment history. If all your payments in the past have been on time it is likely that you will continue to make future payments on time as well for new credit and loan amounts. Any kind of late payments, delinquencies and collection accounts are included in the payment history. Any negative information in the payment history will impact your credit score negatively. The more recent the report of the delinquency the more severe will be the impact on your credit score.

Debt utilization ratio gets 30% weightage in the credit score calculation

Debt utilization ratio is the amount of credit that is available to you and the amount that you have actually utilized. The higher the debt utilization ratio the better it is for your credit score calculation. This means that if you keep the balances on your credit card slow and the total amount of money that you go at any point of time below 30% of what you can actually utilize on credit you will be doing your credit score a lot of good.

Depths of credit history gets 15% weightage in the credit score calculation

The depth of a credit history is the duration of time that it covers. If you have credit accounts that go back 15 to 20 years, then here credit history will have a lot of depth. Debt in a credit history is favourable to a credit score as it shows stability as full as good spending habits.

Enquiries get 10% weightage in the credit score calculation

The effect of enquiries on a credit score is minimal. An enquiry is added to her credit report every time you make an application for credit. Every time a creditor asks to view a credit report of a consumer are the purposes of approving a disapproving credit application and enquiry is recorded on the credit report. If you have a lot of posted data affecting your credit score than you should not worry too much about enquiries. However, to many enquiries in a short period of time can mean that you are trying to take on a lot of debt which you might have problem paying off the future. Too many applications were credit also signifies financial trouble where you are trying to supplement your income by taking money on loan. The credit report contains a list of enquiries that have been made in the past two years but for the purpose of credit score calculation only the enquiries made in the past one years are taken into consideration.

Mix of credit accounts get 10% weightage in the credit score calculation

It is considered a healthy to have a mix of credit accounts in your credit report. For example if you have credit cards, mortgage loan, automobile loan etc. then it is beneficial to the credit score as it displays the ability to manage different kinds of accounts and expenses well. However, this is not a very significant factor in the calculation of your credit score and you should only open accounts that you need.

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