Your credit score or FICO score is a value available to different lenders and other financial companies to know the borrower’s repayment capability for a new loan. These estimates are given by major credit report agencies where they consider various factors in determining your credit worthiness. Factors and its percentages that are used in calculating credit score are as follows:
Payment history (35%): Contribution of payment history on FICO score is around 35%, which is the major factor that affects the credit score. Payment history is calculated using various other factors such as late payments, bankruptcies, defaults, repossessions, charge offs, foreclosures and so on.
Amount of debts owed (30%): Amount of debts is the second largest factor that is used for calculating scores. This is determined by evaluating various types of debts owned by the borrower. In general debts can be categorised into 3 different types, they are:
- Revolving debt
- Instalment debt
- Open debt
Age of credit file: (15%): The age of credit file is also an important issue in determining the value of credit. If the accounts’ date you opened is older, then the chance of getting a good credit score is also more, similarly the average page of all the accounts that are presently on your credit file is also considered into a count. The severity of negative impact also takes into count in calculating credit score.
Types of account files (10%): If the borrower has different types of credit accounts and could successfully maintain these accounts for a longer time then the chance of scoring good credit rate is high.
New credit request (10%): Whenever an applicant wish to get new credit, an application is made by that specific lender requesting your credit information. These types of inquiries will have effect on credit scores.
Therefore, from the above details, hope it is very clear to understand the impact of one’s credit history on their credit score. Having a bad history doesn’t mean that you are not eligible to be financial well-being, with some commitment towards settling your debts you can achieve complete financial stability in short-time. The following are a few tips that help in repairing your bad credit history.
- Try to pay all your bills on time
- If you use more than one credit card, try to stop using them and carry only one with you for emergency usage
- Create effective budget and stick to it
- Implement an effective debt management plan
Individuals who are with bad credit history may not eligible to acquire new credit; even though they are eligible often these loans are charged at high interest rates. To receive instant cash irrespective of credit score and payment history, get same day loans where you need to pay back your loan by your next payday.