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credit score is a numeric representation of an individual's financial credit worthiness as calculated by a statistical model. A credit score attempts to quantify the likelihood that a prospective borrower will fail to repay a loan or other credit obligation satisfactorily over a specified period of time. A credit score is based on the information in an individual's credit report. Lenders such as banks and credit card companies use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate loss to bad debt. Design of Credit Score Credit scores are designed to measure the risk of default by taking into account various factors in a person's financial history. Although the exact formulae for calculating credit scores are closely guarded secrets, Fair Isaac has disclosed the following components and the approximate weighted contribution of each: |
35% punctuality of payment in the past (only includes payments later than 30 days past due) 30% capacity used: the ratio of current revolving debt (credit card balances, etc.) to total available revolving credit (credit limits) 15% length of credit history 10% types of credit used (installment, revolving, consumer finance) 10% recent search for credit and/or amount of credit obtained recently
Benefits of a High Credit Score The Very Best Score If your credit score is 700 or above, you fall into the very best credit range, and deserve to be rewarded for your strong credit history.
Lower interest rates- A high credit score makes you a low risk for lenders, and therefore a very valuable client. Ask for lower interest rates and more favorable terms when you’re negotiating a loan, and you’re likely to get them.
Fee waivers- Utility companies typically require deposits to start service, but with a good credit score this fee can often be waived. If no mention of a waiver is made be sure to ask. Often all it takes is proof that you’ve paid your previous utilities on time, and your credit report should offer just the proof that you need.
Affordable insurance- Did you know that your insurance company is likely to check your credit score before it quotes you a premium rate for auto or homeowners insurance? Surprising, but true. Keep your credit score high, and you’ll receive the very best insurance premiums available.
Your dream job- Are you hoping to land the job of your dreams? If so, a good credit score could help you to get it. Employers often check credit scores as a way to evaluate your level of responsibility. While any employer can check your score, some professions including those that require handling money or being around kids are more likely to require a check.
Peace of mind- Perhaps the biggest reward that comes with a good credit score is financial peace of mind. You don’t have to stress over huge interest payments or maxed out cards because there aren’t any; instead you can devote your time to living life. And should anything come up, say an unexpected medical bill or the need for a new car, you can be sure that you are in the very best position to deal with it.
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Credit Score
