Credit Score – How disciplined are you financially?
Your credit score is a 3 digit number that indicates how disciplined you are financially. Credit score, also referred to as FICO score indicates your sense of financial responsibility. FICO is the acronym for Fair Isaac Corp, the company responsible for developing the methodology of credit scoring.
What are the 5 components of a credit score?
Your credit score is made up of 5 components. They are as follows-
- Payment history
- Outstanding balance owed
- Credit history
- Credit types
- New Credit
Your payment history makes up 35% of your credit score. Usually the last 6 months are taken into consideration. It shows how regular you have been in making payments.
The amount you owe accounts for 30% of the FICO score. There may be several instances when you have been making regular payments but your credit score is not what it should be. One of the possible reasons is that you may be having very high balances on credit lines.
Credit history makes up 15% of your credit score. Here history doesn’t refer to your payment habits. It evaluates your accounts and
keeps a track of the accounts that have been active and open.
10% of the credit score is made up of the types of accounts you have. A mixture of accounts is always desirable. It shows if you have different mix of accounts e.g. auto loans, mortgages, credit cards, installment loans etc.
Your credit score also indicates how frequently you opt for credit.
Experian no longer evaluates your credit score
Generally, the components that make up your credit score can be worked upon to improve credit rating. Your financial activities and monetary movements may cause upheavals in your credit rating. Earlier,the 3 credit bureaus namely, Experian, Equifax and TransUnion used to evaluate your credit score. However, effective February 2009, Experian stopped evaluating credit scores. You can still get your FICO score evaluated by Equifax or TransUnion. Credit scores usually range between 350 and 850 or 900. Higher is your credit score, the better it is. A higher credit score means you are in a favorable position to enjoy several financial benefits like lower interest rates etc.
With the prevailing financial crush, instigated by collapse of the real estate market, every other person seems to be in debt. It is not unknown that there are many debt help options. And the debt relief industry has been very active since the credit crunch.
Debt help options affect your credit score differently
Debt help options like debt consolidation, debt settlement, debt management plan, and self repayment plan affect your credit score differently. However, credit score is not irreversible and if you areable to exhibit a financially disciplined lifestyle, your credit score can soar eventually.
Recent Updates
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A credit report is an evaluation of a person’s financial history expressed in terms of credit score. But do you know what determines your credit score? We are only concerned about having a high credit score. If you go through this article it would help you to know how you derive your credit score.
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