How is a credit score determined?
My wife’s credit score is 693 and mine is 526. We went looking for a car and were told that we couldn’t qualify for a loan without a 25-30% down payment. We think it was because of our scores. How are credit scores determined and how can we improve ours? Your question is one that baffles a lot of people-and for good reason. It’s also somewhat tricky to answer-for the very same reasons. One is that every lender, whether an auto dealer, a bank, or a credit card company, has its own set of lending criteria. These criteria can vary widely, depending on what sorts of risks the lender is willing to take. (Some lenders, for example, base their entire business on making higher-interest loans to people other lenders might reject as poor credit risks.) It’s also difficult to measure the importance of a credit score in a transaction such as yours, in addition to the general difficulty of assessing these scores outside of the context of a particular lender’s guidelines. Although credit scores are
A credit score is based on information contained in your credit file. The FICO® score is calculated using the following credit file items: • Payment history: Approximately 35% of the FICO score is based on this category. • Amounts owed: Approximately 30% of the FICO score is based on this category. • Length of credit history: Approximately 15% of the FICO score is based on this category. • New credit: Approximately 10% of the FICO score is based on this category. • Type of credit used: Approximately 10% of the FICO score is based on this category. Please keep in mind that there are many different scoring models that can be used to calculate a credit score, and each scoring model may give more or less weight to the various items of information in your credit file.
MyFico.com, a division of the Fair Isaac Corp, offers the following breakdown on what data determines your FICO score: 35% Payment History Your payment history will include any incidents of late payment or accounts that were handed over to collection agencies. Bankruptcies and liens will adversely affect your score. The number of delinquent accounts you have, and how recently the problems occurred are all factored into this measurement. 30% Amounts Owed The overall amount you owe to different lenders is a major consideration, as is the proportion of your debt in terms of your entire credit line, or limit. That means, even if you’re allowed to charge up to eight thousand dollars on your credit card, your credit score will be higher if you only owe eight hundred, as opposed to seven thousand. As a rule, financial experts recommend that you try to carry less than twenty-five percent of your limit. 15% Length of Credit History Creditors look favorably on people who have longstanding accoun
The most commonly used credit scores are FICO scores. They are calculated based upon 5 criteria. Your history of payments, the amount you currently owe, the age of your credit history, new credit accounts, and other factors all have an affect. Some factors (such as your payment history) are weighted more heavily than others (i.e. how much new credit you have). In the end, your score will be between 300 and 850. It is important to note that your score fluctuates whenever the above factors change. If you max out your credit cards, your credit score will decline. If you significantly lower your credit card balances, your score will rise (other factors remaining the same).
