Credit Score: How to Understand Them?
The average credit score for the American population as of 2010 was 723.
However there is a dearth of information as to how they are calculated. This article will serve to shed some light on the matter.
Credit scores are affected primarily by 5 main things, which are listed as under:
Payment History
How you have fared over the last several months in repaying back borrowed credit is one of the principal things which affect the credit score. Generally, payment history must be over 35%, with a more recent negligence carrying a greater penalty than the ones in the past.
Debt Level
This aspect refers to the level or ratio of debit to credit on your card. One should never exceed 30% of one’s credit limit, as otherwise the credit score will take a serious hit.
Credit History Length
How long one has had an account affects one’s credit score. The longer an account is open, the better the credit score will be, simply because there is more information available to evaluate from.
Credit Application Inquiries
If one is applying for a lot of credit, it is a damaging practice for one’s credit score. This is because this signifies that one has accumulated a lot of debt or that one is in some kind of financial trouble. These inquiries can remain on one’s credit report for two years. Fortunately the credit score calculation takes into account only those made within a year.
Types of Credit
Having a mix of credit cards from different and major bank companies has a small but positive effect on the credit score. This is because this shows a competent level of financial management of different accounts.
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