How is Your Credit Score Calculated?
It’s no secret – your credit score (also known as a FICO score) can have a huge impact on your financial future. A poor credit score may affect your ability to secure financing, increase the interest rate on loans you do qualify for, or limit your access to services, such as cell phone contracts, apartment leases, or even employment opportunities. Though for many of us, the credit score itself is a mystery, it doesn’t need to be that way. The basic factors that are used to determine your credit score are summarized below. A better understanding of how credit scores are calculated may help you to be able to make smart choices that will result in a higher credit score than the one you currently possess.
Payment History
Your payment history is being recorded month by month, year after year. Do you pay your bills every month? Are your payments always on time? Your credit score will be impacted by your diligence (of lack thereof) to pay what you have committed to and to pay at the time your bills are due.
Amounts Owed
Credit bureaus will also look at how much you currently owe to creditors. This includes all your debts, such as mortgages, auto and personal loans, lines of credit, and credit cards. They look at this amount in relation to the credit that you have available to you. If you are close to the credit limit on your credit cards or lines of credit, this will negatively impact your credit score.
Length of Credit History
Your credit score is also influenced by the length of time you’ve had a credit history and how long your accounts have been open. A longer credit history tends to result in a better credit score.
Types of Credit
Not all credit is treated the same by the credit bureaus. They will examine what kind of accounts you have and how many of each account you have.
New Credit Activity
A final consideration is new credit activity. An increase in new accounts opened or even new credit inquiries will not be viewed favorably.
Federated Bank offers a variety of financing options for businesses and individuals. If you have questions about our available loan options, we would be happy to sit down with you and discuss your situation. We can help you find the right loan for you and your financial situation.
