What is your Credit Score?  

Your credit score is a number that evaluates you as a potential client for creditors. All of your credit history is compiled by the three major crediting agencies; Equifax, Experian and TransUnion, and then rated using a mathematical equation.

The compiled data determines your FICO score, (Fair Isaac Corporation). Their scoring can be much more reliable and is more widely used by financial institutions. This number will show if you are a low or high risk to them for lending purposes.  

Your score is determined based on several factors from your credit history. Depending on how you manage your credit, you may have good or bad credit.

As well, as time goes on your payment history may improve but your debt ratio may get worse, thereby affecting your credit in a different way. Your credit score is always evolving, so it is important to know the factors that make up the credit score. 

Payment History 

This looks at how your payments have been made over the past seven years. Are they on time or late? How many late payments have you made? If you have had loans go to collections or have claimed bankruptcy these items will affect your score more. The rating system does however consider more recent history over the older items listed. 

Debt Ratio 

Debt ratio addresses the amount of credit you have available as well as the balances on these accounts. This can affect you in different ways. It is better to have more credit accounts with low balances than it is to have only a few with high balances as the scoring table is looking at how much credit you are using as opposed to how much credit you have available. 

Length of credit history 

Length of credit history is important to the scoring table as it shows your longtime standing with your credit accounts. Having open credit accounts that have been active and maintained works well in you favor. With continually opening and closing your accounts it is too hard to determine your reliability as a credit client. 

Types of credit 

There are several types of credit and although some are better than others the scoring looks more at your credit account not all being of the same type. Revolving credit is the type you have with credit cards where there is not set time frame to pay off the balance, where as installment payment has a specific payment schedule to pay off your loans. The scoring also looks at mortgages and vehicle loans. 

Number of Credit Inquiries 

Every time a credit report is pulled in your name it is recorded and listed in your history. Too may inquiries imply that you are continually seeking credit and can in turn affect your score.

There are two types of inquiries. Hard Inquiries are those that financial institutions require when you apply for credit. Soft inquiries are those that you do when you purchase your credit report. The soft inquiries will have a minimal effect on your credit score where as the too many hard inquiries can bring your score down.