How Is A Credit Score Calculated?

Many people are unaware of what their credit score actually is and many more have no clue as to how it is calculated. The score itself is used by financial institutions, retailers, employers, landlords, and more to determine whether or not someone may be a credit risk. Having a poor credit score can have a big impact on one’s financial future. If a score is not up to par, knowing how it is calculated can help someone to improve upon it.

One of the biggest portions of anyone’s credit score is determined by payment history. This is a history of one’s record of paying back debts. If someone has a mortgage, a credit report will display any missed or late payments. A history of late payments will negatively affect a credit score. To improve a score, it is necessary to pay one’s debts on time and consistently.

Another factor that helps determine a credit score is the amount that someone owes. If a person has very high balances on several credit cards and owes student loans and a car payment, the credit score will reflect that the person is deeply indebted. To improve in this area, make sure to pay any installment loans on time. While a person may owe a significant amount, making the debt payments on time will reflect in an improved credit score.

A person’s length of credit history is also a factor of the credit score. The younger a person, the less credit history he or she has. Over time, one can build a solid credit history by making any and all debt payments on time.