Everyone who uses a credit card or has taken any loan or even planning to take any loan must know that how credit score is calculated. It is as important as using credit card or taking loans.
Whenever you or borrow money from some credit agency or finance group the lender sends your information to credit bureau. Once your report is send to credit bureau your background records are monitored. Based on your previous performances your credit score is calculated.
The calculation of Credit Score mainly depends upon following five factors:
(1) Your previous credit performance
(2) Your current level of indebtedness
(3) Time credit has been in use
(4) Types of credit available
(5) Pursuit of new credit
These factors are included in credit score calculations but each of these have different values. Most valuable factor is the first one. The weighting breaks down is as below:
Previous credit performance = 35%
Current level of indebtedness = 30%
Time credit has been in use = 15%
Types of credit available = 15%
Pursuit of new credit = 5%
Clearly from above information one may determine that most importnat fator for getting a loan is to have good credit performance in past. Also it is also important whether the person is haveing any other debt or not.
Other factors such as credit time, type of credit and pursuit of fresh credit are of less importance but one can not overlook these issues.
This is how credit score is calculated.
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