Calculate Your Credit Score
When you are trying to calculate your credit score, looking at how it was determined in the first place is a good place to start.
What is listed here is a generally agreed upon scale of how ones score is determined but....
Keep in mind that each financial institution has their own set of rules and the exact formula is a closely guarded secret. One that probably changes daily.
It is not like your bank account where you know the numbers and can call if they don't add up. The numbers are theirs, they own them.... even though they are about you.
So this formula is just a good rule of thumb.
Bottom line is you can make the numbers go up with work on your part and constant vigilance.
Payment History
This category gets the biggest percentage at 35%. Common sense tells you that.
If you were lending money to a friend or acquaintance wouldn't a known history of not paying the money back to others influence your decision to lend to that person?
So the same it goes here!!
The information that is part of the payment history is...
- The account information (the number) and type of credit
- The presence of adverse information
- Amounts past due
- Severity of delinquency
- Age of the accounts
- Number of past due payments
- Number of paid as agreed
When trying to calculate your credit score taking into account how many accounts are in good standing and how many are past due or worse delinquent is important information.
Hopefully the good outweighs the bad.
If past due payments are weighing you down then a plan put in place to control that maybe your first order of business!Keep in mind this area is monitored for up to 2 years and 6 months of payments on time as agreed can do much good.
Amounts Owed or Debt
Next biggest factor to calculate your credit score.This one gets thirty percent!
This is an area that can get you turned down for credit. This is also called Debt Utilization. What is looked at:
- type of account
- amount owed on the account
- number of accounts with balances
- PROPORTION OF CREDIT USED IN CONJUNCTION WITH CREDIT LIMIT
- proportion on installment
This category has been getting much attention in the last few years as the rules have changed. The type of account is looked at and scrutinized much more here.
Mortgages and loans get looked at but the important ones are the unsecured revolving credit accounts (your credit card).
The current credit score advise when calculating your credit score is to get a ratio of using only 30% of your total available credit on any one account. Some even suggest getting it down to 10% is optimal if possible.
Keep in mind overall utilization of credit, meaning for example:
Card #1 has 5000.00 limit and you are using 1000.00 (good you are at 20%)
Card #2 has a $7000.00 limitand maybe you are using $4000.00 (not so good you are over 50%)
but then you have
Card #3 that has no balance and another $5000.00 limit.
Current understanding is that you would NOT want to close the account of Card #3 even if you have no plans to use it as the available credit limit helps your overall utilization look good.
(17,000.00 limit/5000.00 in use under 30%).
What is probably suggestible in this instance is to take some of the portion of credit from card #2 and place it on card #3 to make all accounts stand under the 30% rule.
So as you can when you are working to repair a credit score that credit and its usage has become a game of strategy.
Length of credit History
This one gets fifteen percent
- They look at the time each account was opened
- Time on specific types of accounts
- Time since activity
Of course there is no way to work on the history in a quick manner but keeping the accounts in good standing as long as possible is the goal.
Another note for this category is if an account has had some sizable time in inactivity you may want to take it out and use it for some small activity (gas, groceries something you already have the cash on hand) that can be paid quickly.
You can risk the possibility of having it closed for you by the creditor and therefore lessening your overall available credit.
New Credit or Inquiries
This one gets ten percent
- number of recently opened accounts and types
- Number of recent inquiries
- Time since recent account opening and type of account
- The re-establishment of positive credit history following past payment problems
To calculate your credit score keep in mind that if you are young and new to the credit game caution is advised here. Opening too many accounts to quickly will cost you points. Slow is better.Overall it is not a big concern but, If you have a large purchase coming in the near future that a low rate is desired showing restraint is a good idea.
For those of you who are not new to credit, remember if you are using balance transfers, too many transfers involve you in the opening of too many new accounts. The savings in rate reduction may not balance the reduced points on your credit score resulting in a higher rate at a later time.
So again STRATEGY!!
Caution and planning are a must.
Types of Credit Used
This lastly also gets ten percent
This is the get to know the lender area to calculate your credit score. Some may stick to the same type of accountsand others will have a well rounded out lending portfolio.
There may be some lenders who like to see a customer with a well varied credit history that shows they are able to handle a good assortment of lending opportunities.
So if you are adding some critical points to calculate your credit score and possibly boost it for say a mortgage thisis an area to look at.
Generally speaking the range of scores are between 300 and 850. Some start lower and some go higher but in general 700 is good enough for the better rates.
The scores at the three major credit reporting agencies should be fairly close and an average of the three should be a good estimate of what a lender will come up with.
With the above percentages one should know where their work lies in their repair credit score work.
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