The breakdown of an average credit scoring method. More specific information in next paragraph.
In early 1980s, the Fair Isaac Corporation (FICO) collaborated with the three major credit bureaus in America (Experian, Equifax, and Trans Union) to develop a credit scoring method. The score ranges from 300 to 850, 850 being the best score.
The general breakdown of a credit score is as follows:
35%-PAYMENT HISORY: whether the user paid his/her bills on time
30%-OUTSTANDING DEBT: how much the user owes for car or home, the number of his/her credit cards and their limits
15%-LENGTH OF ACCOUNT OPERATION
10%-NEW CREDITS: Opening new accounts lowers the score.
10%-TYPES OF CREDIT: i.e. revolving credit, installment loans, or mortgage.
This three-digit number has a significant impact in the daily lives of most Americans as well as those of the residents in 21 countries that use the credit score system. A person with low credit score will face difficulties taking out loans or mortgages because creditors will provide only few or no choices. Credit scores also determine the interest rates for a loan: a user with higher credit scores will pay less interest for their loans. For example, a person with a credit score of 500-589 will pay almost twice the interest of someone with credit score of 720-850.
Credit scores soon allowed people with high credit scores to enjoy more privileges, such as rewards and benefits that credit companies provide. Those with lower credit scores, however, suffer higher interest rates, fewer options available for loans, and even disqualification for a mortgage loan.
Credit scores soon allowed people with high credit scores to enjoy more privileges, such as rewards and benefits that credit companies provide. Those with lower credit scores, however, suffer higher interest rates, fewer options available for loans, and even disqualification for a mortgage loan.
