Credit Score – Where does it come from?

Understanding where your credit score comes from is very important, this way you will know how to keep your credit score high or you can work on repairing them in case you have a low score.

Credit scores are based on research, much like your insurance premium. Your insurance company likely asks you questions about your health, your lifestyle choices (such as whether you are a smoker) because these bits of information can tell the insurance company how much of a risk you are and how likely you are to make large claims later on.

Credit bureaus do the same thing; they gather information from banks, credit card companies, utility companies, other financial institutions, and even from your landlord. They will then look at how well you’ve been managing your financial responsibilities. And based on these, your credit score is arrived at.

Experts agree that these factors make up your credit score;

• Your credit history - Whether or not you have been a good credit risk in the past is considered the best indicator of how you will react to debt in the future. For this reason, late payment, loan defaults, unpaid taxes, bankruptcies, and other unmet debt responsibilities will count against you the most. You can’t do much about your financial past now, but starting to pay your bills on time - starting today - can help boost your credit score in the future.

• How long you have had credit - If you have not had credit accounts for very long, you may not have enough of a history to let lenders know whether you make a good credit risk. Not having had credit for a long time can affect your credit score. You can counter this by keeping your accounts open rather than closing them off as you pay them off.

• Your current debts - If you have lots of current debt, it may indicate that you are stretching yourself financially thin and so will have trouble paying back debts in the future. If you have a lot of money owing right now - and especially if you have borrowed a great deal recently - this fact will bring down your credit score. You can boost your credit score by paying down your debts as far as you can.

• The types of credit you have - Lenders like to see a mix of financial responsibilities that you handle well. Having bills that you pay as well as one or two types of loans can actually improve your credit score. Having at least one credit card that you manage well can also help your credit score.

Plus other factors that I might not know about. I know new credit also affect your credit score, they make up about 10% of your total score. It might look like there are a lot to look out for but if you just remain disciplined and responsible in settling your debts, your credit score will be A-OK!

Credit Score – Where does it come from?