A credit score is a number which indicates to creditors how reliable you are likely to be in making repayment to them based on your past history. Lenders prefer to see the highest score possible, which indicates to them that you present a low risk.
Credit scores are calculated by the credit reporting agency using software known as FICO, which stands for Fair Isaac Corporation, the company that came up with the equation responsible for assigning consumers a credit score between 300 and 800. There are five factors that go into determining the total score and each is given a weighted percentage.
Your payment history consists of a record of whether you paid your monthly bills, secured credit such as a mortgage and unsecured credit like a personal loan, on time each month or if you were late. The history dates back seven years and indicates if you were 30, 60 or 90 days past due. Public records are also a part of the payment history score and include such things as bankruptcy, judgments and write-offs. /
This section includes the total of the amounts you owe to all creditors, which is commonly referred to as debt to income ratio. Creditors are wary of lending to people who are maxed out on credit or who have a debt to income ratio exceeding 35 percent.
Your score in this area will automatically improve the longer you have credit established. It also factors in the amount of time that has elapsed since the last reported activity on your accounts.
Lenders prefer borrowers who have a range of credit products rather than one who has only one type of account, particularly if that is credit cards only.
Your most recent use of credit is analyzed for this portion of your score. If you have several inquiries or new accounts, it could reflect poorly on you.