What’s Inside Your Credit Score?

Whenever you vie for a new car loan or personal loan, you have to present the same documents over and over again. And as always, credit bureaus and creditors also desecrate your credit score. With this, they decide on your viability as a credit risk. With their verdict, you can either pass with flying colors or not. And by not means you could be thrown at ranks fit for bad credit loans or be completely denied.

As you might known from experience, having a good credit score is the best way to go. Not only will you get the exact amount you’ve applied for but you get the optimum rates as well. From insurance premiums to interest rates, you only get the best offer. However, when you fail to impress with your credit score, accept your fate of loans for bad credit. Say hello to higher interest rates and other stricter terms.

But all through these experiences of loan applications, have you ever wondered how you got such scores? Yes, you may be aware of your three digit credit rating but do you know the inclusive factors? Do you know the percentages that make up your credit rating? If not, here is a brief overview of how credit scores happen. Read on and you’ll finally know what you are up to every time you charge or apply for a loan.

There are five basic building blocks that make up your credit score. Roughly they are your payment history, outstanding balance, credit history length, new credit accounts, and types of credit.

Your payment history makes up 35% of your credit score. This includes all the payments you have done and all kinds of debt you have had. It includes information on your credit cards, bank loans, mortgage and so forth. It also records any foreclosures, bankruptcies, lawsuits, defaults and so on.

Your existing balance makes up for 30% of your score. This includes your balances on each of your credit cards and existing loans. Basically, this answers the question if you could possibly handle any more debt.

The length of your credit history makes up 15% of your score. This part includes the age of each of your accounts. A longer history usually gets a good score. However, young yet timely paid accounts can cover up that longevity flaw.

New accounts make up 10% of your credit score. The information provided in this criterion includes the latest accounts you have made and inquiries made by the lender. It also provides the recent requests you have made.

The types of credit used block makes up 10% of your overall score. This part includes information regarding all the varieties of your lending experiences. For instance, credit cards, car loans, payday advances, mortgage loans and so on.