What Your Credit Score Is Made Of

What Your Credit Score Is Made Of – Your credit score is an amalgamation of a few factors like your previous payment history,your spending habits,repaying capability,types of loans and cards you own and others.These factors contribute to a score that is usually in the 300s and can go as high as the 800s. Depending on how these individual factors collectively fare,you will be assessed and assigned a score.

This score continuously changes every few months and does not stay stagnant for long.This is good if you want to improve your score.

Who assigns this Credit score to you?

There is no offical regulator who assigns a score for you,however FICO is often considered the most accurate standard for generating your credit score.If yo go to the FICO website and enter your financial details,a credit score will be calculated based on data values and a score will be shown.
There are other sources also from where you can calculate your credit scores but FICO always gives a good estimate.
The BEST and most reliable indicator of your credit score comes from your credit report that is digitally stored with the credit bureaus.This is a detailed credit history of your financial life over the period of the last few years.This too is constantly updated,sometimes once every month and records all important aspects of your debt and credit.
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How does having a good credit score affect you?

A higher credit score is a good indicator of your financial health.This has tremendous benefits for you when you apply for a loan,credit card,mortgage,auto loan etc.
The bank or credit union that acts as the lending party or the card issuer will first do a check on your credit score,and accordingly agree or decline to sanction you a loan or card.
If you have a low credit score there are a few possible outcomes:

• The card issuer or lending agency will either not give you the loan or card,or else give it to you with higher interest.The credit card might also have a lower credit limit.
• The loan/card issuer might also send an inquiry to the credit bureaus to request access to your credit report if it needs to dig deeper.
• If your score is low and credit report both have a sketchy past with late payments,issued payments and a bad credit history,then you will most likely be turned down.

What is the credit score break up components?

Some of the individual components that go into making up your credit score  are:

• Credit Inquiry – These are checks on your credit history done by businesses like credit card issuers,banks,financial institutions or loan lenders.Ideally,the lesser the credit inquiries on your credit report the better.
• Payments– This is an extremely important component and makes up one third of your credit score.These payments refer to all you payments against credit cards, loans, mortgages,insurance,auto loans and major utility bills payments.These collectively are stored in the credit report as payment history and stick around in the report for atleast one financial year.
• Credit Utilization – The amount of balance accumulated on your credit card versus the credit limit of the card is the credit utilization percentage.It should be maintained  below 30% for it to reflect well on your credit score.
• Debt – The total amount of debt that you currently are in including all loans,mortgages and credit card debt is also a ranking factor that works inversely towards your credit score.The more debt you are in,the more it brings down your credit score.

What seriously hurts your Credit score?

Delinquent payments,missed payments,foreclosure and loan defaulter, including financial fraud are black marks on your credit report and directly translates to reducing your credit score.
These negatively influence your credit score for a long time and stay on record indefinitely.