What is Credit Scoring?

Garden1“Credit Scoring” is your personal financial background computed by each country’s credit score organisations: some government link, some private to identify the level of your credit risk based on the following categories:

1. Payment History (35%)

The lender will usually look at whether you have paid your credit accounts on time, based on….

  • Payment information on all types of accounts (personal loans, mortgages, credit cards etc.)
  • Public records and collections items (events of bankruptcy, suits, repossession etc)
  • Details of late or missed payments based on recency and frequency
  • Number of accounts that showed late payment

2. Amount Owed (30%)

Owing money in a few credit accounts does not give you a negative score, however owing too much money to too many credit accounts may label you as overextended causing late or missed payment. Consideration will be taken on

  • Amount owed on different accounts
  • Balance in certain accounts (credit cards showing a low balance is a plus)
  • Number of accounts with balances (too many may be viewed as over extension)
  • Total credit line given by all “revolving” credits and the maxing out of such accounts
  • The amount owed in loan account compared to the original amount borrowed

3. Length of Credit History (15%)

Longer credit history is a plus point but if you have a short history with good payment record is good as well. Factors taken into consideration are:

  • The length of all your credit accounts (age factor is considered)
  • The length of specific credit accounts
  • How long you have been using these credit accounts

4. New Credit (10%)

Opening up several credit accounts in a short span of time is considered greater risk especially if you do not have a long term credit history. Factors considered are:

  • How long since you opened a new account
  • How many new accounts you have
  • How many recent requests you put in for credit cards

5. Type of Credit (10%)

Your credit mix will be taken into consideration if there is little information on your credit report:

  • Mix of credit types i.e credit cards, loans, mortgage loans etc
  • Total number of accounts you have
  • Total number of accounts you have but not in use

If you have made a few mistakes or have been making late payment, it is not going to give you a totally bad rating. Other positive factors listed above may neutralise the effect.

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