Your FICO Credit Score Ratings - How are They Determined in Layman Terms?

Your FICO Credit Score Ratings - How are They Determined in Layman Terms

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The FICO scoring system is the one generally used most in the US. These are the contributing factors that help to ascertain how your credit score ratings are calculated:

Thirty five percent of the calculation is based on your payment information. The system looks for any unfavourable information that can have a negative effect on a consumer's credit rating or score. The system takes into account late payments and judgments and any negative occurrence that has a negative effect on your score rating. FICO also looks at the age of the event, so this means that the more recent the occurrence, the worse the effect will be on your score.

Thirty percent of the calculation is based on how much money you owe andwhat type of debt you have. This has a sizeable impact on hoe your credit score ratings are calculated.

One of the types of debt is revolving debt which is "plastic card" debt. Any card, whether it is credit card or store card is considered here. The calculation is based on the difference between the balance owing versus the available credit. The smaller the gap between the two, the more damage it does to your rating.

Another type is instalment debts like an car loans, where you are making a repayment over a 36 to 60 month period. And lastly open debt, which is the type that gets fully settled each month and the least common of the three types.

Fifteen percent of the calculation is based on your credit history. This signifies the length of time you've utilized credit and as such this should benefit you if you have an older credit report. The age of your credit is established by the date opened of the oldest account.

Ten percent is based on the spread or range of your credit. The more of an variety of credit you have, the better it is for your score. In other words, if your credit spread over a mortgage, car loan, revolving credit and instalment loans, this has a positive effect on your score.

Ten percent of the calculation is based on the inquiries run on your credit report. These are inquiries by a lender when they check your credit worthiness after an application has been made by a consumer for some form of credit. Keeping inquiries low can help your credit score ratings because a lot of inquiries over a short period of time period can be incorrectly alleged as a signal that the consumer is in financial difficulty.

Your credit score ratings can change considerably without a consumer even being aware of it. It pays to keep in touch with your score and monitor the important changes personally so that you have complete control over the changes that influence your ratings.

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