You are here: Home > Finance > How is your credit score calculated

How is your credit score calculated

Although you may not realize it, your credit is an important factor in your life. Your credit score can determine many things about both your present and your future. Some things affected by credit include getting a job, getting insurance, renting or buying a home, and and even obtaining a loan. Understanding your credit score may seem overwhelming at first. There are many things that work together to create your total score. By learning a little about your credit score and what it consists of, you can ensure that your score is as high as possible.


One of the largest contributors to your score is your payment history. Your payment history will consist of all prior bills that you have paid. If you have been on any payments in the past or simply ignored payments, this will reflect on your score. If you had a bill sent to a collections agency, this will also show. It is important to stay up to date on your bills is important to show people that you can be trusted to pay what you owe on time.


Your debts are another huge factor of your credit score. Your debts consist of any prior loans that you did not pay off on time. If you still have not paid these, it will drop your score even lower.

The next two factors that have a small impact on your score are you credit length and credit inquiries. The longer that you have had established credit, the better your score will look. This is why it is important to begin establishing credit as soon as you possibly can. You can establish credit in many ways including having an active bank account, applying for a store credit card and paying it off, and getting a secured credit card. Be careful when applying for credit, however, because a lot of new credit inquiries will make your score much less appealing. When you apply for credit in numerous places, it is a sign that you may not be stable enough to manage your money on your own.


The type of credit score that is used by most is known as the beacon score. Your credit score will be anywhere between 300 and 900. Any score that is around 500 or less is generally going to be looked upon negatively. A score at or above 600 is ideal.


Although your credit score may not be the first thing on your mind, it is definitely something that you should work to improve. By having a high credit score between 600 and 900, you have a great chance of being accepted for a loan, buying a new car, and qualifying for many other things that require decent credit.

Comments are closed.